Jesse Walker’s Reason blog post, Memo to Stockholm, references Timothy (Wirkman) Virkkala’s suggestions to thoughts about the Bank of Sweden’s upcoming Nobel Memorial Prize for Economics. I posted a comment there:
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Hans-Hermann Hoppe notes in an interview:
among Austrian economists there has been some speculation why Hayek’s recognition came so late (in 1974). One highly plausible explanation is this: If the prize is awarded for the development of the Mises-Hayek business cycle, then as long as both Mises and Hayek are still alive you can hardly give the prize to Hayek without giving it also to Mises. Yet Mises was a life-long opponent of paper money (and a proponent of the classical gold standard) and of government central banking–and the prize money for the economics “Nobel” was “donated” by the Swedish National Bank. Mises, then, so to speak, was persona non grata for the “donors.” Only after Mises had died in 1973, then, was the way free to give the prize to Hayek, who, in contrast to his “intransigent” master and mentor, had shown himself sufficiently willing to compromise, “flexible,” and “reasonable.”
Update: A friend told me Friedman was in favor of Mises getting a Nobel; I expressed disbelief, so he quoted to me from p. 353 of Ebenstein’s Hayek bio:
Friedman has written in response to a query from Mark Skousen: “I believe Ludwig von Mises was certainly of a quality that would have made him an entirely appropriate recipient of a Nobel Prize” in Economics (Friedman letter to Mark Skousen, March 5, 1996).
I don’t get this. How can Friedman think this if Mises’s methodology was so much at variance with Friedman’s positivism? See, e.g. Friedman’s comments, as quoted on p. 273:
In 1995, Friedman made the following comments about Hayek’s and particularly Mises’ methodological positions:
I never could understand why they were so impressed [at LSE] with the lectures that ended up as Prices and Production, and I still can’t. As of that point, he [Hayek] had not freed himself from the methodological views of von Mises. And those methodological views have at their center that facts are not really relevant in determining, in testing, theories. They are relevant to illustrate theories, but not to test them, because we base economics on propositions that are self-evident. And they are self-evident because they are about human beings, and we’re human beings. So we have an internal source of final knowledge, and no tests can overrule that. Praxeology.
That methodological approach, I think, has very negative influences. It makes it very hard to build up a cumulative discipline of any kind. if you’re always going back to your internal, self-evident truths, how do people stand on one another’s shoulders? And the fact is that fifty, sixty years after von Mises issued his capital theory–which is what’s involved in Hayek’s capital theory–so-caled Austrian economists still stick by it. There hasn’t been an iota of progress.
It also tends to make people intolerant. If you and I are both praxeologists, and we disagree about whether some proposition or statement is correct, how do we resolve that disagreement? We can yell, we can argue, we can try to find a logical flaw in one another’s thing, but in the end we have no way to resolve it except by fighting, by saying you’re wrong and I’m right.
On the other hand, if you take more like a Karl Popperian approach, an approach which says what we do in science is to offer hypotheses about the consequences of certain events and, if we disagree, we test those by trying to seek empirical evidence that contradicts our predictions–if you and I disagree, we have another way to solve our problems, resolve our differences. I say to you, what facts can I find that will convince you I was right and you were wrong. You say to me, what facts can I find that will do the opposite. Then we go out and observe the facts. That’s how science progresses.
Now, as I said, I believe that Hayek started out as a strict Misesean, but he changed. The more tolerant atmosphere of Britain, then subsequently of the U.S., and his exposure to a wider range of scholars, led him to alter that position.
Does this sound like someone who would respect Mises enough to think he deserves a Nobel Prize?
Update: See also Hoppe’s comments about Hayek, Mises, and the Nobel prize in his Mises University 2001 lecture “Mises and the Foundation of Austrian Economics” (starting at about 1:10:20 or so), where Hoppe notes that f you want to win the Nobel peace prize, it helps if you are a mass murderer; if you want to win the economics Nobel prize, it is always of advantage if you have contributed to ruining various countries’ economies or you have written completely irrelevant mathematical treatises that are of no concern to anyone whatsoever (he also notes that the economics prize is donated by the Swedish central bank and the committee members are life-long appointees and except for two years social democrats have run the show so that it is roughly predictable who can possibly win the prize; thus, James Buchanan has advocated a 100% inheritance tax and is hailed as a free marketeer, so he can win; Milton Friedman, a free marketeer who fought for paper money all his life, endorsed the negative income tax (guaranteed income), educational vouchers (like food stamps for education), can of course win. I.e., socialists can win and be presented to the public as free marketeers.Hoppe notes in another interview:
A&K: Supposing you sat on the Nobel Prize committee for economics, who would you consider deserves the Prize–please exclude yourself.
HHH: Anyone of the leading lights associated with the Ludwig von Mises Institute. However, the nominating committee is filled with statists, and the prize itself has been established by the Swedish Central Bank, and so, given the fact that Misesian economists are uncompromising free-marketeers and oppose in particular any form of monetary socialism (central banks), their chance of ever winning the prize is virtually zero.
A&K: Why would you nominate them?
HHH: Because Misesian – Austro-libertarian – economists have the best grasp of the operation of free markets and of the detrimental effects of government (states) on the formation of wealth and general prosperity. This is illustrated by the fact that Mises, and those economists following in his footsteps, have by far the best record in predicting the outcome of socialism, of the modern redistributive welfare-state, and in particular of government-controlled paper-money regimes and of central banking.
Jesse Walker mentioned to me that Hayek didn’t publish The Denationalization of Money until after he won his Nobel, and wondered if Hayek really supported central banking at the time he collected the prize. Comments?
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Classical Liberalism Protection
Wednesday, October 7, 2009
Ludwig von Mises Transcends The Tainted Nobel Prize.
In other words, the Nobel Prize for economics has been a political ploy from the start. As with all politics that is associated with economics it is ego-driven. Technically there are two kinds of economics that are born out of politics: 1). ego-driven interpretation, and/or 2). ego-driven interventionism. In common, they are both empirical.
In contrast, economics that respects and seeks to understand subjectivism has no affiliation with politics. Yet the political systems that sprout from subjectivism are variations of classical liberalism and as such are prosperous, peaceful, and endowed with liberty.
Milton Friedman was a kind and gracious man, even to his intellectual opponents. That’s one of the reasons he was so influential (and why some Austrians respect him). So I think that may be why he thought Mises deserved recognition, in spite of his disagreement with Mises. One can recognize the venerable “quality” and talent of an academic researcher without agreeing with that person entirely.
Sukrit: But being gracious does not explain why he thinks Mises should get a Nobel–he apparently fundamentally disagreed with him.
As for being kind and gracious–that’s all well and good, but I’d rather someone not support taxing me than being gracious, if it came down to it.
“if you’re always going back to your internal, self-evident truths, how do people stand on one another’s shoulders? … if we disagree, we test those by trying to seek empirical evidence that contradicts our predictions–if you and I disagree, we have another way to solve our problems, resolve our differences.”
Around 20 years ago I heard about an economist – I’m not sure who it was but in retrospect it must have been a Friedmanite – proposing to experiment by taking over the only trading post in a remote village in Labrador and then mess with people by jerking the prices up and down in order to test whether demand is elastic, or whatever. It’s too bad they couldn’t pull it off, they would still be publishing papers full of equations, standing on each others shoulders, getting professorships at large universities, etc.
@ Stephan Kinsella: But it doesn’t make Friedman inconsistent per se. Even though he didn’t agree with Mises, Friedman still thought he was Nobel material. I think that’s more than just gracious for the same reason that HHH says that an Austro-libertarian should have a Nobel. As far as Friedman was a libertarian and political opinions of the receivers influence public opinion, a Nobel for Friedman was ‘just as good’ (so to say) as it would have been if it had been granted to Mises. Consequentialist argument, I know…
Hayek’s Nobel Address didn’t directly oppose central banks? It just discussed the detrimental effects of what central banks do, a few problems with “scientism”, a baseball game, and phenomena of “organized” and “unorganized complexity”…? He was being “clubbable” with the Swiss bankers?
TBH, there is a lot of fruitful discussion on Austrian theory, so I am not sure what Friedman is on about. Is having secure foundations a defect? No. I suppose some people just can’t handle some things not being up for grabs.
The nobel prize should go for George Reisman. I think he is the brightest since Von Mises.
I agree with Inquisitor. Friedman’s characterization of how new research in the Austrian methodology seems to be flawed. Notice how he mentions how “we resolve disagreement”. It looks like he fails to grasp the fact that self-evident truths will lead to certain natural outcomes and can only lead to certain natural outcomes (provided of course that the natural outcome proposed is not logically flawed, and can thus be refuted). It looks like he is saying that what would happen in praxaeology is that researchers will simply make things up as they go along and will hold to their own personal assertions regardless of whether refutation is possible.
But even assuming he is correct, he has not shown that the “positivistic method” would do any better of a job if it could accumulate all the economic empirical data it could. Indeed, this is what has been occurring in the Chicago school for the decades, and yet they have not done nearly as good a job vindicating free enterprise than the Austrians have. This is because economics CANNOT BE LIKE PHYSICS; it does not have known constants which can lead to conclusions that are always correct. The only method that can do this is the Austrian method because it is based on axioms which cannot be disproven. How he can think of this as a detriment instead of the pillar of strength it is is most perplexing.
And how can he make the case that no progress is made in this field? This may have been true back when Hayek got the Nobel prize, but the only reason that is so is that there were very very very few Austrians on the face of the planet then. This is certainly not the case now or even over the last decade. The fact that massive amounts of new research in the Austrian tradition are being performed now is testament to that. I mean just look at what has been added to the economics of IP over the last 3 years. In this time period more has been done in this area than the Chicago school has done with it. Or the theory of the state?
Friedman’s position is superficially logical, but it does not stand up to scrutiny or experience.
Friedman: “It makes it very hard to build up a cumulative discipline of any kind… There hasn’t been an iota of progress…how do we resolve that disagreement? We can yell, we can argue, we can try to find a logical flaw in one another’s thing, but in the end we have no way to resolve it except by fighting, by saying you’re wrong and I’m right.â€
If Friedman were alive, I would ask him how well his program has done at advancing economics and resolving conflict. Testing theory against the data has done nothing to resolve confict in mainstream economics or advance the field. Using data to test ideas hasn’t worked because no one can agree on which data to use, how much to aggregate it, or which statistical methods are appropriate. Mainstream economists have run literally billions of regressions on the data and they still can’t agree.
The latest crisis has proven that no progress has been made in macro economics since the 1930′s. When the crisis hit, all mainstream economists jettisoned all of the billions of regressions they had performed and fell back on a flawed text from 1936, Keynes’ General Theory. Friedman’s criticisms of Austrian economics applies much more to mainstream econ than to Austrian.
Cool post. Interesting Friedman quote which nonetheless misses the point of Austrian methodology.
Jeffrey Sachs deserves this year’s Nobel. He’s been kissing enough ass to be worthy to succeed Stiglitz and Krugman.
I’m tired of all the Milton bashing.
I don’t see anything here that suggests he didn’t respect Von Mises. He just didn’t like his approach, but that doesn’t mean he didn’t think Von Mises wasn’t an important and original thinker.
Hoppe says in the interwiev: “Hayek’s Nobel Prize was certainly well deserved. Incidentally, among Austrian economists there has been some speculation why Hayek’s recognition came so late (in 1974).” Late? In 1974? The first Nobel of economics was awarded in 1969.
Friedman’s remarks on the difficulty of resolving disputes in a purely theoretical discipline sound really strange. Mathematics has been exactly the kind of purely theoretical discipline he envisions, for millennia; there is literally no empirical test for the truth of mathematics. There is only logic. Mathematics papers are full of theorems and propositions and definitions and assumptions and proofs, without an empirical test in sight. But I don’t think it’s evident that mathematicians are any more hostile or incapable of agreement than astronomers, physicists, or geneticists. Friedman seems to be appealing to his own internal mental model of deductive fields more than to actual experience of their practitioners . . . which seems surprising, given that his own work included a nontrivial portion of math!
There should be a prize for inter-disciplinary excellence and should be awarded post-humously to the greatest mind of the twentieth century–Murray Rothbard.
Typical Hoppe, cheat shots at economists far greater than him (Hayek, Friedman and Buchanan).
Typical Giles, unfair sniping at his betters.
I think everyone’s missing the forest for the trees.
Mises, virtually alone, stood outside the pale of professional economists ever desirous of adoption of their recommendations by the State and of being in position to influence that policy personally. To Mises (and, indeed, to all Austrians), the very idea of “economic policy” is almost a contradiction in terms: there are extraordinarily few (I hedge there simply because I can’t think, offhand, of any) “policies” (other than “laissez-faire, laissez-passer”) that will redound positively for the state employing them.
The United States, itself, and its founding document (the Constitution) predates discovery of the subjective nature of value; in this wise, virtually the entirety of the Constitution’s applicability to economic life (and the subsequent legislation drafted and passed in accord with that applicability) are all extremely flawed economically and probably beyond remediation via any other means than a new Constitutional Convention for the express purpose of renovation in accord with subjectivism and certain other economic realities (particularly the province, by default, of the Austrians).
All economists, apparently (except the Austrians), are, today, in one fashion or another, similar to those in Germany whom Mises derided, using their own words, “the intellectual bodyguards of the House of Hohenzollern.” Not much has been learned since that time; not much has changed.
I suppose it’s not surprising that Friedman complained about Austrians not having “progress” for the sake of progress and unrelated to actual substansive change; doing that to the money supply was, after all, his entire philosophy.
It’s some what ironic that Friedman would complain of the lack of progress in Austrian econ, when all he did was re-introduce the quantity theory of money into Keynesian econ. By doing so, he helped Keynesian econ catch up to Austrian econ to a small degree, but his wooden interpretation of the quantity theory kept any real progress small.
While on the subject of progress in economic research and Friedman’s claim that Austrian research had stalled with Mises, Tyler Cowen had this comment about mainstream research:
“2. Standard models of matching and job search generate cyclical employment behavior in the required manner when combined with varying real shocks; see for instance Mortensen and Pissarides (1994). The asymmetry in these models comes from the difference between job creation and job destruction, which is again related to option value. M&P even build some simulations to show the effects can be quite large and that they fit to some extent with real world data. This is one of the best macro papers of the last twenty years and it is commonly recognized as such.”
Since Cowen had such high praise for the article, I had to look it up. You can find it at http://road.uww.edu/road/ahmady/IndepStudy/unemployment/Mortensen_Pissarides_1994.pdf.
It’s a very interesting paper, but if you cut through the jargon and the math, here’s what you have: shocks to the economy cause changes in the rate of job creation by chaning the price of labor with respect to the price of the product made. The latter part, the part that so impressed Cowen, is nothing but Hayek’s Ricardo Effect. The authors translate it into math; that’s all.
The former part, the nonsense about shocks, is nothing but code for “we don’t know what happened.” I’ll never understand the use of the word “shock” by mainstream econ. It doesn’t explain anything. It merely describes what happened. Economics is supposed to explain what happened. Of course the authors of the paper had a very narrow purpose–to explain the changes in job creation when macro data change and to add a lot of math to it. But if you take out the word “shock” and add the Austrian business cycle theory, you have a pretty darn good paper.
The sad thing is that Cowen thinks that what Mortensen and Pissarides was something new. That’s what happens when you don’t know any history. You think everything is new. If it’s new it must be better. And if you throw in a lot of math symbols, then it becomes deep.
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