My summer research proposal

by Sam Selikoff March 16, 2011

I recently was awarded a summer fellowship to conduct research at the Mises Institute. Here is the proposal that I submitted:

As an amateur Austrian economist, I often find it difficult to clearly and concisely explain differences in first principles to people who have been trained as mainstream economists. Austrian economics notably devotes much more time and energy to elaborating the philosophical fundamentals of economic science than mainstream and neoclassical economics does, and this may partially explain why talking about first principles with a mainstream economist often leads nowhere.

Reflecting on my own transformation from a mainstream economist to an Austrian, I think back to the first compelling arguments I heard. These arguments were not about epistemology, philosophy, or first principles but rather concerned the more apparent and outward differences between the two approaches. The supply curve doesn’t represent marginal cost of production but opportunity cost; production takes time and the various stages must be coordinated by some mechanism; the externality literature is spurious, contradictory and untenable. These arguments, which applied to conclusions rather than assumptions, are what really caught my eye and caused me to explore Austrian economics further.

I eventually realized the differences were more than just superficial. The essay “Economic Science and the Austrian Method” by Hans-Hermann Hoppe was superb in explaining how disparate Austrian and mainstream first principles really were. Once I understood the epistemological problems with positivism, I became a full-fledged Austrian. Since then, these types of difficulties have been my primary complaint with the mainstream perspective, and as such they are usually the topic of any methodological conversations I have with mainstream economists.

But they are not how I became an Austrian. The philosophical arguments against mainstream economics were not even on my radar when I first learned about Austrian economics. If I had heard the arguments, I’m not sure I would have even seriously considered them. I think this is largely because mainstream economists rarely take the time to understand the foundations to their own approach to the science. Thus, in an effort to win over mainstream economists to the Austrian method, I think Austrians should alter their approach to critiquing first the conclusions of the mainstream, rather than the assumptions.

Ever since gaining this insight about my own transformation, I have often thought it would be helpful to have an essay or short book summarizing these differences in conclusions. Inspired by Jeffrey Herbener’s lectures at Rothbard Graduate Seminar and Mises University in the summer of 2010 on this very topic, this is what I propose to the Mises Institute for my research this upcoming summer. Professor Herbener’s lectures contained many of the more compelling critiques of the mainstream approach I have heard – how a tax affects the market price of a good, how the mainstream snuck cardinal utility back into economic analysis after the Pareto era, how functional analysis is wrongfully seen as an innocuous but powerful assumption – but I have yet to find a single go-to source for all of these differences. I think a short, easy to read book, targeted towards students and professors raised in the mainstream, containing the Austrian critiques of the most ludicrous, contradictory and flimsy mainstream claims would be a very powerful tool for Austrians to have. A rough (but by no means final) outline of the book follows. It is my hope that the Mises Institute will provide me support for completion of the book next summer.

Part I (Approach)

  1. Approach (verbal vs. mathematical logic, functional analysis, assumptions of differentiability and continuity, mutual determination vs. causal-realist…)

  2. Value (valuations, subjective vs. objective, preferences, Marshallian scissors…)

  3. Abstractions (unrealistic vs. anti-realistic, appropriateness…)

  4. Empiricism (importance of facts to developing theory, falsifiability…)

Part II (Micro)

  1. Individuals (existence of quantitative constants, existence of utility function, cardinal utility, indifference, optimizing, valuation of money, substitution and income effect…)

  2. Prices (determination, theory…)

  3. Firms (supply, input prices, cost-plus pricing, competition & entrepreneurs, perfect competition, monopoly theory…)

  4. Exchanges (mutually beneficial, taxes and other interventions, effect of forced exchange on welfare, public goods and market failures…)

Part III (Macro)

  1. Social Planner (economic calculation, production & ownership, ‘distribution’ of assets…)

  2. Growth (causes, evidence, marginal propensity to consume, liquidity preference…)

  3. Capital Theory (interest rate, aggregation, time structure…)

  4. Monetary (inflation vs. deflation, central banks, no working theory of how macroeconomy is ‘supposed to work’, look at correlations to define cycles and assume random tech shocks, MV=PQ…)


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