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What We Can Learn from a Great Economist

InvestorEducation / Economic Theory Aug 15, 2012 - 12:49 PM GMT

By: David_Gordon


Best Financial Markets Analysis ArticleAlthough Leland Yeager calls himself a fellow traveler of the Austrian School (p. 100), rather than a full-fledged member of it — he is a fellow traveler of the Chicago School as well — no reader of his essays can fail to note one respect in which he resembles two quintessential Austrian economists, Ludwig von Mises and Murray Rothbard. Like them, Yeager is a scholar of enormous learning, a fact in evidence in each of the 28 essays of his collected here. As an example, few of his colleagues, one suspects, would know that "Thomas Hobbes … suggested that one might test whether a piece of abstract philosophizing means anything by seeing how readily it could be translated from the original language into another" (p. 267, n. 2).

Often, his own views emerge from the critical comments he makes on other writers. Yeager insists, against Robert Clower and Axel Leijonhufvud, that Keynes was a Keynesian. The writers whom Yeager opposes take Keynes to be an advocate of monetary-disequilibrium theory, stressing especially the difficulties in adjusting prices to changes in the demand to hold money.

Yeager mordantly comments,

Clower and Leijonhufvud admit that Keynes did not explicitly state what they suppose he meant. They offer excuses for him. In trying to break free from orthodoxy, he was handicapped by unavailability of the required concepts. The orthodox doctrine he was attacking had not yet been spelled out explicitly enough. Still, ample excuses for not having done or said something are not, after all, the same as actually having done or said it. (pp. 159–60)

Instead, Keynes supported the crude doctrine from which his sophisticated defenders are anxious to extricate him. "I [Yeager] blame the Keynesians for lingering notions that government budget deficits, apart from how they are financed, unequivocally 'stimulate' the economy" (p. 165). It is this false doctrine that has had undeserved influence. The tale is best continued in Yeager's inimitable way:

While a visiting professor at George Mason University in the fall of 1983, I not only had to clean the blackboard after my classes, as a professor should; I also had to clear away what the inconsiderate professor before me had left on the board. Through the entire semester, more often than not, it seemed to me, what was left was the Keynesian cross-diagram illustrating the simple-minded Keynesian multiplier. (p. 165. I have reversed the order of the two quotations from this page.)

Much more to Yeager's liking are the views of W.H. Hutt, who criticized Keynes from a standpoint that stressed price discoordination in depressions; in this he resembled Clower and Leijonhufvud, although he did not work out the monetary implications to the extent these later theorists did. These economists argued that sticky prices arise from rational behavior under the circumstances, but

Hutt blames government for not suppressing the basic reason — villainy — why prices and wages do not clear markets and assure continuous coordination. He perceives villainy — but the word is mine, not his — on the part of labour unions, business monopolists, and government itself. Villainy includes such things as union control over wages, minimum-wage laws, overgenerous unemployment compensation, and monopoly and collusion. (p. 178)

I shall not resist the temptation to quote Yeager again. Hutt has not had the influence he deserves, Yeager thinks, owing to his wretched style:

Hutt's exposition is a collection of discursive and often cryptic remarks … in no readily intelligible order, we find bits of positive analysis, jabs at Keynesianism, historical allusions, policy proposals, and autobiographical asides.… Strewn through Hutt's writings are echoes of long-standing obsessions, including, of course, his obsession with labour unions.… Hutt often covered himself against challenge by qualifying apparently egregious propositions with cryptic phrases that are hardly understandable unless the reader is already familiar with his terminology and allusions. (pp. 184–86)

In "Tautologies in Economics and the Natural Sciences," Yeager makes an outstanding contribution to understanding praxeology, although the essay does not have that as its purpose. The theorems of praxeology are a priori true: how, then can they give us new knowledge about the actual world? Are not such propositions mere tautologies, empty of empirical content? So, at any rate, said Mises's logical-positivist critics.

Yeager's comments on tautologies take exactly the line followed by Mises in Human Action, though this has not won favor among many of Mises's followers. Yeager contends that tautologies are more useful than their detractors suppose:

Tautologies are analytic or logically necessary propositions.… Analytic propositions can give us new knowledge (or aid us in its pursuit).… Logic and mathematics, although apodictically certain, can sometimes yield surprising results.… Concepts may legitimately be formulated so that certain propositions about relations among them are not merely true but necessarily true. Many propositions of science are true as a matter of convention, yet conventions are not arbitrary. (pp. 263–64, 277)

Not content with this contribution, Yeager in another essay, directly devoted to Mises, offers another line of defense for praxeology. He says that Mises took a priori propositions in economics to be common-sense truths: they are empirical, but of a character whose truth is immediately apparent without testing.

The Austrians' concern for facts of reality is often overlooked because of their supposed insistence on a purely a priori method. The term, notably as used by Ludwig von Mises, unfortunately invites misinterpretation. So used, a priori suggests an unintended sharp contrast with empirical. Mises did not mean that all important propositions of economic theory can be spun out of factually empty logical truisms. He relied, rather, on axioms for which factual evidence constantly presses itself on us so abundantly that we can hardly imagine a world to which those axioms did not apply. (p. 138)

Readers no doubt have noted that these two defenses are not the same, but I do not think that we have here a genuine inconsistency. Perhaps some theorems of praxeology are better defended in one of these ways, and others in the other way.[1]

Given Yeager's resolute defense of a priori truth in economics, it is surprising that he also endorses W.W. Bartley's misguided assault on "justificationism." Yeager, following Bartley, says,

An often unrecognized trait running through the history of philosophy, justificationism is the expectation that all proposition be justified (demonstrated, proved, warranted) by appeal to some authority, whether reason in the style of Descartes, empirical observation, divine revelation, or some other definitive source. But no interesting proposition can be justified in such a way.… It is reasonable to accept, tentatively, laws and theories not yet rejected on logical or empirical grounds and not yet displaced by more attractive alternatives. Accepting them in that way is not the same, however, as holding them to be justified or proved, for positive justification is downright impossible. (p. 235)

Is it really open to doubt, e.g., that the law of diminishing marginal utility is true or that an exchange will take place only if the parties to it expect to benefit from it? I cannot see why, against Yeager's own apt remarks in support of the a priori quoted above, we should reject such apodictic truths because of some antijustificationist dogma. Most philosophers seek to avoid skepticism: Popper, Bartley, and their followers embrace it, holding, e.g., that there is no good reason to believe anything. Why join them?

Yeager's wide interests extend to ethics, and here he forcefully defends the utilitarianism of Mises and Henry Hazlitt against other views. To him, ethics rests on the ultimate value judgment that happiness is better than unhappiness. Given this judgment, which nearly everyone shares, we can say further that the best way to achieve happiness is through social cooperation in the free market. Promotion of such social cooperation thus becomes the proximate goal of ethics.

He sharply criticizes Rothbard's defense of natural rights. What is the point of natural rights, if they do not advance human happiness? Rothbard grounds natural rights in natural law. "Each entity, including the species man, has its own distinct nature." After a quotation from Rothbard, Yeager says, "To appeal to what is necessary for man's life and prosperity, given his nature, sounds like a utilitarian argument" (p. 430).

In the broad sense in which Yeager uses the term "utilitarian," no supporter of Rothbard need quarrel with what Yeager says. He is right that utilitarianism as he has characterized it is not vacuous: clearly there are some views of ethics that do not accord primacy to human happiness. Samuel Hopkins, e.g., an 18th-century Congregationalist theologian, said that people should be willing to be damned to hell, if necessary, for the greater glory of God.

Hopkins would not qualify as a utilitarian in Yeager's sense, so his utilitarianism has content; but it is nevertheless not fully specified. Whose happiness counts? Everyone's? Only that of a certain group? These and many other questions remain open. We may I think regard Rothbard's account of rights as a way of specifying Yeager's utilitarianism, rather than as a rejection of it. Yeager is free to disavow it, but if so, he needs to put in the field a competing theory. Merely to announce a preference for happiness and the market does not suffice as an ethical theory: Yeager has as it stands done no more than give us a criterion that such a theory must satisfy.

Yeager is a forceful and effective critic of numerous theories of ethics; his penetrating discussion of Buchanan's contractarianism, e.g., deserves careful study. In a few places, though, his remarks about various writers seem to me mistaken. He surprisingly treats Brand Blanshard's account of the "rational will" with favor. He says of it, "Briefly interpreted, Blanshard's rational-will doctrine says that the obligation to support government is binding because — and to the extent that — it serves social cooperation" (p. 502).

The doctrine does say this, but it also says much more. The rational-will doctrine holds that if support for the government in fact serves social cooperation then people actually do support it, even though they imagine they do not. Their conscious will need not reflect their real or rational will.

This position opens the door to the denial of freedom: the government, in restricting people, has only to say that it is enforcing the people's rational will. Indeed, the view closely resembles one which Yeager in another essay condemns. He notes the claim of Father Bernard Häring that liberty is the power to do what is good, and says of it, "On this interpretation, when the state prevents an individual from acting in a way considered bad, it is not infringing his liberty (or his true liberty). What equivocation!" (p. 312).[2]

Yeager remarks about John Harsanyi's defense of utilitarianism,

If Harsanyi's method resembles Rawls's 1971 notion of choice behind a veil of ignorance, the similarity goes to show that such a conception of impartiality need not be a distinctively contractarian one, as Rawls seems to think. (p. 499)

I do not see why Yeager says this. Harsanyi's project is precisely a contractarian argument for utilitarianism.

Also, his criticism of Nozick's use of the Lockean proviso seems to me wrong. He says, "Nozick misapplies the Lockean proviso anyway, since it concerns original acquisition of property, not its retention in the face of changed circumstances of other persons" (p. 507). But Nozick is endeavoring to construct his own theory, rather than to interpret Locke. If his theory differs from Locke's, it is not by that fact alone shown to be mistaken.

These are minor matters. One leaves Yeager's outstanding book with admiration for the author's learning, incisive arguments, and love of liberty. Yeager mentions more than once Ayn Rand's criticism of "second-hand" thinkers. He is no second-hander but rather a proudly original thinker and scholar.

[1] I am not sure there is even the appearance of inconsistency in Yeager's own presentation. His examples of analytic tautologies in economics, such as Walras's Law and the equation of exchange, do not come from Mises. Perhaps he did not intend his account to apply to praxeology at all. But it manifestly does apply; and, in any case, Yeager cites the law of comparative advantage as a tautology (pp. 273–74) and this is part of Mises's economics.

[2] I have translated this, I hope correctly, from the original Interlingua. This is an artificial language Yeager has long championed. Fortunately for me, all of the other essays are written in English. The essay slightly misspells Father Häring's name.

David Gordon covers new books in economics, politics, philosophy, and law for The Mises Review, the quarterly review of literature in the social sciences, published since 1995 by the Mises Institute. He is author of The Essential Rothbard, available in the Mises Store. Send him mail. See his article archives. Comment on the blog.

[Where Keynes Went Wrong And Why Governments Keep Creating Inflation, Bubbles, and Busts • By Hunter Lewis • Axios Press, 2009 • Vi + 384 pages]

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