I'd like to write an article summarizing a Rothbard lecture, where he mentions 16 mistakes AE corrected in economics, and he says the mainstream in his time still believed in many of them. He wrote it a good while ago, so I need help to know which, if any, of the points he raises are still accepted by today's economic schools, be it neoclassical, Marxist, the various flavors of Keynes, anything.
So here's a sneak preview of the article. Please enlighten me about what you can.
16 Classical Economic Mistakes that AE Fixed Up Before Mises, But the Mainstream Still Believes in.
All the 16 were corrected before Mises, by Menger and Bohm Bawerk and Frank Feder.
Mises found some more, and we’ll get to them in another article, hopefully.
Source for this article: Mises and Austrian Economics Murray N Rothbard.mp3
and Mises and Austrian Economics Murray N Rothbard_2.pdf
In other words, I’m summarizing Rothbard. I’m not sure when he made the presentation. He mentions computers and calculators being cheap, and the Communist countries still being Communist, so that may give some clue. I’m also not sure which of these blunders are no longer believed by the mainstream. So the format will be as follows. I’ll name the fallacy, then quote Rothbard about it in italic font, then mention what little I know about it. I’ll put a star next to the ones I’m not sure of. Without further ado, the big 16.
1. Too much aggregate, too little individual. ...all the other schools of economics...deal with aggregates, groups, classes, wholes of one
sort or another, without focusing on the individual first and building up
Smiling Dave: Yep, this one is still with us.
Devil’s Advocate: But Dave, you don’t explain why it’s wrong.
SD: That’s beyond the scope of the article, which is very long already. Just going to list the blunders, not refute them.
*2. Consumer prices are determined by cost of production [when the truth is vice versa]....value, economic value, price, was determined by the cost of production...
SD: I’ve seen this one around still.
3. Labor Theory of Value....the cost of production embodied in some fashion in the product, and specifically
by the quantity of labor hours embodied in it.
SD: In another mp3 in the series, his listeners tell Rothbard that no professional economists, not even Marxist
economists, believe in that anymore. But among sociologists, fiction writers, and the like, people who are Marxists
but have not actually studied any economics, the Labor Theory of Value is alive and kicking.
*4. False Dichotomy of Exchange Value and Use Value. ...value in use and value in exchange, ... and we have to deal with exchange value,
and forget about use value. You see right away this sets up the conditions for a whole bunch of
left wing thought in the late 19th, early 20th century. It’s still going, I
suppose,...production for use and production for profit.
It immediately sets that up somehow as a big distinction.
SD: I’ve seen some of this around. Don’t know if mainstream econ, or even Marxists, still believes in this.
5. Preoccupation With Numbers. ...science meant measurement in those days for these people. And so therefore, how do
you measure value, how do you measure changes? He’s looking for
some hard quantity...
SD: Oh, yes, worse than ever.
*6. Distribution Theory.
...they had a separate thing called distribution, theory...trying to figure out...who decides
how much of the national output goes to wages, how much goes to profits, how much goes to landlords?
SD: Don’t know if this is still around.
*7. Class Conflict....a class struggle between these three mighty groups, [land, labor, and capital].
In other words, the good is produced somewhere, first they produce
it, then they fight for who gets the different shares of income
SD: Most people still believe this. I don’t know if mainstream econ also does. I get the impression that not.
*8. Iron Law of Wages....wages are determined by the iron law of wages, the Malthusian iron
law, down at the subsistence level...Everybody gets the lowest possible wages...
SD: I think Marxists think this true, as do labor unions. Don’t know about mainstream econ.
*9. Landlords are Parasites Who Deserve to Be Paid Zero Rent. ...evil, unproductive landlords, getting an increasing share
of the national product...
SD: I think this is still believed by laymen, and I think by Keynes as well. Don’t know if the mainstream still thinks so.
*10. Focus on Equilibrium....focused totally on nonexistent, unreal,long-run
equilibrium. This is done right now by modern microeconomics, and
macroeconomics, for that matter...In long-run equilibrium you
don’t have to forecast anything; nothing ever changes.
*11. Forgot about the Entrepreneur....they don’t talk about entrepreneurs because entrepreneurs deal with change and
uncertainty. You make a profit if you can forecast better than the next
guy. You make losses if you can’t forecast. In long-run equilibrium you
don’t have to forecast anything; nothing ever changes...So the entrepreneur
then becomes a pain in the neck. It’s messing up your neat
SD: My impression is that this is still going strong.
*12.Perfect Knowledge.Since nothing ever changes, everybody has perfect knowledge, as they
call it, perfect knowledge, everybody’s in perfect competition, there’s no
uncertainty, no risk, no profits, there are no losses.
SD: I think there’s a thing now called Rational Expectations, which I think is a revival of this old chestnut.
Need to know more about it.
13. Micro and Macro Never Meet....separate, divide totally the macro from the micro sphere.
We’re all familiar with that, those of us who take current economics...
Micro, you learn about supply and demand or whatever,
and then suddenly you leap into macro
and nobody talks about supply and demand,
they all talk about growth curves and velocity and all that, totally different.
...It’s like two hermetically sealed spheres.
There’s the microsphere where things are going on, it’s fairly
understandable, supply and demand, prices and all that. Then there’s
the macro sphere, totally cut off from the micro, where you have
money and prices bouncing up and down, with no relationship between the
SD: Alive and kicking.
*14. Don’t Understand Interest....the poor anti-usury people could never
figure out... what their justification for interest
is, interest on a pure loan. They could understand about risk, they
understood about uncertainty and all that; they just didn’t understand
about, why should people be able to charge three percent or eight
percent or whatever on a pure loan.
SD: Keynes believed this, dunno what the mainstream thinks nowadays.
*15. Capital is a Homogeneous Lump....capital...as a homogeneous lump, which modern economics still tends to
say, just add more capital, as if it’s somehow a blob out there.
Capital is a latticework, it’s a network, a structure which all has to fit in
together. And by the way, only the free market can fit it in. Only
entrepreneurs, the profit and loss test, profit and loss, incentive, and
free price system can do the fitting.
SD: My guess is that this is still around.
*16. It Takes Time to Make Stuff, and Some Things Need More Time than Others....modern economics still has not learned, capital takes time, production
takes time. Capital is a time structure.
Some goods are very close to consumers, like producing Wonder Bread,
where the retailer is very close to the consumer.
On the other hand, machinery, the iron ore that goes into making the
machinery that produces Wonder Bread is way up the structure, takes
a lot of time to get to the earlier phase of production or a higher order
of production. So we have then production taking time.
SD: I don’t think they get this yet.
So there you have it. As you can see, I need more info on the latest mainstream take on 12 out of 16.
DA: Dave, you would have failed a mainstream econ test. For shame.
SD: We can’t all be perfect.