Oh boy from experience this is a very loaded discussion.
I personally like the Austrian framework because I find it aesthetically pleasing (I guess I'm a sucker for deduction). Some of the writing is simply intellectually interesting and also very scholastic for lack of a better word. For example, even if you completely disagree with the analysis I'd argue that "America's Great Depression" is a very good read simply from an intellectual point of view and "Man, Economy, State" is a very good tome that contains a framework of thought.
I also enjoy the science theoretical musings quite a bit. The writing on Aristotelian ontology is very good for example.
There's also works where I constantly shake my head at the implications and political conclusions but intellectually I still love them. "The Ethics of Liberty" is probably the clearest example of this. Do I think that letting a baby starve to death because it is basically a parasite is morally desirable: no. Do I find the idea of trying to deduce an entire ethical framework from first principles fascinating and the way it is done interesting: yes
There are lots of things about AE that I find irking but the core theory and the science theoretical basis is very interesting/intriguing to read.
I also like that pretty much everything is readily available on mises.org. I wish all "schools of thought" would be this forward thinking.
I read the ethics of liberty as well and came to the conclusion that the deduction of its ethical framework is flawed (though interesting nonetheless). Here's a link for those interested in my write-up: http://jcfrei.com/on-the-ethics-of-liberty/
> Do I find the idea of trying to deduce an entire ethical framework from first principles fascinating and the way it is done interesting: yes
I wonder if there is anyone less deranged than Rothbard working within the same deontological framework. I honestly struggled reading "The Ethics of Liberty" because I can't accept his base principles. I was hoping to find some kind of justification for homestead principle, but he basically says it's self-evident. Maybe for American libertarians it is, but for most people it's not.
David Friedman's consequentialist approach is probably less aesthetically pleasing, but at least his "The Machinery of Freedom" shows that you don't have to be a lunatic to be an AnCap.
The five reasons given are IMO attributes of Rothbard and Mises but in my view neither of them is substantial to Austrian economic theory. They deal with modelling preferences (point 1-3), the influence of third parties (point 4) and a kind of ridiculous "you use 'subjectivism' so often, it sounds like you're implying we don't care about subjectivism" discussion (point 5).
Since none of the are integral to Austrian economic theory but a few of them are against opinions of Mises and Rothbard (and I wouldn't even disagree with the author's view points here), it's comparable to saying "Darwin said you should always explore distant nature in a naval vessel and he believed in God, therefore his theories are wrong".
To substantiate:
1. Utility Functions vs. Value Scales
Everyone can use the representation of utility he wants, it just has to be decided whether it's appropriate in the case he applies it to or not. I assume small quantities of every day items (say potatoes) are easier modeled in continuous well-defined functions while preferences for the quantity of shopping malls is much harder to model that way. Neither means the other is necessarily wrong but as always modelling is not the same as reality.
2. Indifference
I can personally see how I am indifferent to a few things but it's unlikely you see it in my actions (other than watching me flip a coin). Now how is that again related to Austrian Economics?
3. Continuity
Basically Mises and Rothbard are arguing against modelling various dimensions as continuous functions. I see how their claim can be true under some circumstances and how it can be useful under others.
So again how is that relevant to being (or not) an Austrian Economist?
4. Welfare Economics
> Rothbard could only claim the welfare effects of government intervention upon "social utility" are indeterminate
Agreed. Government is not necessarily bad.
The rest of the discussion there is about "assumptions": Whether and how a third party affects a voluntary exchange.
Again, this is not at all necessary for Austrian economics, and attacking it is an exercise in futility.
5. Subjectivism
This argument is not an argument, it's about word usage frequencies and how they imply things. WTF
Whilst you're right that this is focused on Mises/Rothbard as Caplan acknowledges in his opening paragraph, it's fair to say that the economics of Mises/Rothbard is the strand of Austrianism that gets all the attention and funding; not many people describing themselves as Austrian economists are followers of Lachmann. So it's more akin to a criticism of Keynesianism which focuses on arguing most things Keynes, Hicks and the New Consensus macroeconomists said were wrong.
As for your points:
1. The position that ordinal and cardinal representations of utility are both valid in certain circumstances and in practice identical economic models can often be derived from them is the mainstream economics one which the Mises strand of Austrianism rejected. If you believe that "neither means the other is necessarily wrong" you're rejecting one of their core assumptions.
2. Indifference is pretty easily reflected in actions. Obvious example of a revealed preference of indifference between two items:
"Which one?"
"Either one"
(sure, I'll accept that in some cases a person might delegate a decision because they have a specific preference to give the delegate responsibility or to be surprised by the choice which is greater than their preference for one item over the other, but a lot of the time it's clearly genuine indifference between items. I'm not trying to impress the store clerk when I don't care which no-name manufacturer my $1 widget comes from). If Austrian economists insist on (re)defining economics as a set of immutable laws of human action, it helps not to have such obvious counterexamples to one of their claims...
3. Austrian Economists following the approach of Mises insist that modelling dimensions as continuous functions is never acceptable. ergo if you believe continuous dimensions are sometimes a useful modelling assumption, that's a pretty good reason not to be an Austrian economist (even if you think their objections to the representation of some dimensions as continuous differentiable functions are valid; it's not like Austrian economists are the only people offering such critiques)
4. Considering that the thrust of Mises/Rothbard's arguments is that government is [almost always] bad for allocation of resources, it's a pretty major shortcoming that based on their own foundational assumptions they can't actually argue that even the most egregious examples of government misallocation of resources actually are misallocation of resources.[1] (Many mainstream economists also argue against the validity of interpersonal comparisons of utility, but could at least have some grounds for argument that lesser quantities of output under a price-fixing regime are suboptimal on the grounds of Kaldor/Hicks inefficiency since they're willing to consider non-revealed preferences.)
5. Caplan doesn't elaborate on this particularly well, but it's a standard claim by Austrian economists that mainstream approaches involving quantitative analysis aren't compatible with the concept that value is subjective. It's also pretty well established that many classes of quantitative mainstream model work pretty well with Austrian-style subjective preferences (viz. based on ordinal preferences within a budget constraint).
[1]obviously Austrians have lodged other objections like claiming that allocation of resources for production in the absence of a price system is "impossible" (clearly incorrect) rather than merely less efficient, and generally subscribe to ethical arguments that government intervention is "coercive" except when used to prevent people from using resources other people claim ownership over. But not being able to say "West Germany produced better economic outcomes for its citizens than East Germany, or even than medieval Prussia" is a pretty major disadvantage in an economic theory.
look at all of his arguments as a framing of neoclassical (math/calculus-based econ) vs. austrian (non-continuous/messy/favoring nature/functions too complex to be described and calculated econ)
1. author argues that Rothbard's austrian "value scale" approach is unable to derive the key income and substitution effects used in neoclassical modeling, but that Rothbard adds them into his framework ad hoc without properly deriving them
this has nothing to do with the reality of modeling the utility of potatoes for individuals vs. shopping malls for society, rather deriving key properties that are used in logical predictive modeling (eg my wages increase ∴ consumption curve shifts right BY income effect)
2. yeah, not related to any precepts of austrian or neoclassical economics, more of a philosophical discussion of how preferences must be revealed by action in econ rather than introspection, freezing time, or flipping a coin every time you're indifferent. he's rejecting both of their rejections of an implication of neoclassical theory, but it's not practically important, just a reflection of caplan's beliefs
3. rothbard and mises reject the notion that preferences are continuous, which means they can't be neatly drawn on 2D graphs and used in calculus. Rothbard continues to use diagrams and calculus somewhat hypocritically, while Mises doesn't use diagrams. author thinks (as do most economists) that graphing utility and preference functions as continuous and therefore being able to do useful things such as find their intersections, take their derivatives, etc. far outweighs the utility of describing them in non-continuous terms
author thinks all austrian economists reject continuous micro functions, which is untrue (just Rothbard and Mises) but supports his larger theory that austrian economics is not as useful/actionable as neoclassical
4. author is defending the principle of pareto efficiency, another fundamental neoclassical principle which allows economists to measure how free market distortions such as communism and rent control effect different groups within the economy. author is criticizing rothbard's framework which only allows one to call acts of government welfare "indeterminate" and thus be unable to measure their effect and get things done
5. defending the technical definition of "efficiency" again because the technical definition is needed to construct proofs and get things done
basically author is saying neoclassical is much more useful for getting things done with economics, and that rothbard and mises (who he takes to represent the whole school of austrian econ) didn't provide many useful tools from which others could predict/model/build off
Friedman had something similar to say about Hayek:
"[I am] an enormous admirer of Hayek, but not for his economics. I think Prices and Production is a very flawed book. I think his [Pure Theory of Capital] is unreadable. On the other hand, The Road to Serfdom is one of the great books of our time".
It's funny that modern Hayek adherents are so militant about preventing things that Hayek himself was completely fine with. He saw a government role in pricing externalities, banning poisons, preventing deforestation and pollution, limiting working hours or other manipulative labor contracts, preventing private fraud, and in wealthy societies, providing minimum food, clothing, housing and social insurance.
That list would make many at Mises scream bloody murder. Man our discourse is just so petty.
I would be surprised if there are more than 50 people alive today who have read Hayek's "pure theory of capital" cover to cover and understand it. I read "prices and production and other works", which was difficult, but pretty interesting and made me understand the major flaws in KeynesIan economics. However, "Pure theory of capital" is over my head though. I am glad to see that even Milton Friedan agrees with me.
Might consider adding (1997) to the title. Even tho the article isn't date stamped, the author indicates the approximate year:
> I was able to attend the 1989 Mises Institute summer seminar at Stanford, where I met Murray Rothbard and many of the leading Austrian economists for the first time. It is now eight years later;
He also writes: "I have just completed my Ph.D. in economics at Princeton, and will be joining the faculty of the economics department at George Mason in the fall." He joined GMU in 1997 according to http://econfaculty.gmu.edu/bcaplan/cv.html .
Regarding points 1 and 2, I think any argument that relies on the concept of utility in some essential way is either false or trivial. Take for example the theorem that "utility-maximizing individuals equalize the marginal utilities of goods consumed divided by their prices".
Utility can't be measured directly, and must be inferred from a consumer's behaviour. It's begging the question to infer an agent's utility function from their behaviour and to simultaneously conclude that the behaviour maximises the utility function: that's true by construction.
On the other hand, we can assume a functional form for an agent's utiilty for a given basket of goods. I guarantee that real-world preferences are more complicated than any function we can write down, so any prediction we make about an agent's preferences will almost certainly be wrong.
All in all, utilities are a nice toy, but aren't really any use outside of the world of theory.
eg 1 banana = 10 utils, 1 apple = 5 utils, 1 car = 100 utils, etc
utils are just a proxy for money and/or time which are interchangeable through wages paid for labor
money is our real world way of valuing the utility of goods, labor, and more generally time (the scarcest resource of them all)
utility functions will never describe an individuals preferences perfectly (hell you couldn’t perfectly describe the utility of any of the transactions you make) but they’re useful when describing and predicting aggregate behavior, especially when fed a lot of consumer data (higher confidence)
all of game theory also uses the concept of utility to weigh payoffs and there are many many real world applications of game theory
its not perfect but no models are perfect, that’s why we have statistics and probability theory to guide us as well
"(...)Mises alone, and perhaps Rothbard, who stumbled upon Operationalism in economics, but instead of comprehending that a truthful proposition must be BOTH externally correspondent, and existentially possible to construct via a series of rationally testable operations, attempted to somehow conflate Jewish Law, and Mathematical Logic and instead, created the pseudoscience of ‘praxeology’ under which they claim all economics must be produced by a sequence of operations.
This left Mises respected but a laughing stock without a position. Unfortunately he did not understand what he had stumbled upon, and he could have reformed economics. But he failed. He failed because he was committed to his dogma, and committed to his error."
I'm not convinced by the way the author argues. For example, he gives U=aln(quantity of apples)+(1-a)ln(quantity of oranges) as an example of a utility function and in the very same section claims that neoclassical economists only use ordinal scales, hence the criticism of presuming cardinal utility doesn't apply.
But does it really make sense to use a nonlinear function to represent ordinal preferences?
As a philosopher working in the so-called theory of value structure - basically, about the meaning of 'better than' - my criticism of preference modelling would be different and applies to both camps. First, if the modelling is descriptive we know that people have e.g. non-transitive preferences and completeness also doesn't hold. Second, there are also pretty good arguments against the transitivity of 'better than' from a normative perspective that at least need to be defused somehow. IMHO, the right solution points towards conditional preferences and/or lexicographic decision procedures. In a nutshell, multiple criteria interact in complicated ways and the assumption that the outcome of aggregating them is a neat complete preorder is generally not warranted. (And there is plenty of work on nontraditional decision theory by e.g. Fishburn to support alternatives.) Third, there are good arguments why some of our evaluative comparisons between items are cardinal, at least on an interval scale, whereas others are purely ordinal. I understand why this would be an undesirable point of view for an economist, though, since there is no known rationally and normatively justifiable way of aggregating ordinal and cardinal utilities into a meaningful overall assessment. From a measurement-theoretic perspective, an overall ordinal utility is the best you can get in this case. There seems to be a certain tendency of economists to dismiss certain plausible views because they are technically undesirable rather than on the basis of substantive arguments.
Another thing is that as far as I can see, economists who presume ordinal utilities do not seem to care enough about Arrow's Theorem in contexts with multiple attributes. At least they should make clear that IIA ought not hold when ordinal preferences are aggregated.
I think I agree with the crux of what you have to say, but do you have an example of people having non-transitive preferences?
I can't think of one off the top of my head, and the classical economic argument is that non-transitive preferences would create a 'happiness pump' where I get stuck in a loop trading one thing for another and feeling good about the trade every time.
With the example of U given, U(2 apples + 2 oranges) > U(5 apples), which would not be true for a linear variant of U. You could transform this utility function into exp(U) = apples^a * oranges^(1-a), to make it more linear.
But I believe in general only linear transformations preserve all aspects of a utility function, when you start to look at the expected utility of a bet with probability p of outcome a and probability (1-p) of outcome b, which has expected utility E[U] = pU(a)+(1-p)U(b). I can imagine that it is harder to accept that this view of utility functions actually models human behavior.
Note Caplan replies to some of this and it's linked in the same place. Reader beware - I do not recall the jist of it all as it's been some time (~10 yrs) since I last saw this. Interestingly, Caplan has a profile on Mises.org:
https://mises.org/profile/bryan-caplan
re “I conclude that while self-labeled Austrian economists have some valid contributions to make to economics, these are simply not distinctive enough to sustain a school of thought“
This seems a little crazy to me. I think there is a world of difference between current economic philosophy that runs the US-centered world and Austrian Economics as depicted on the Mises web site.
I am not an economist but I do sometimes read the Mises.org web site and until recently I made monthly contributions to support the site.
I credit Mises.org with information that led me to divest my retirement accounts out of the stock market in 1997. That saved me a lot of money.
I'm not sure I understand your argument, the Mises Institute could make valid contributions to the field of economics without being a distinctive school of thought. I mean the paragraph you've quoted says exactly as much, in full:
>I conclude that while self-labeled Austrian economists have some valid contributions to make to economics, these are simply not distinctive enough to sustain a school of thought. The task of developing an alternate Austrian paradigm has largely failed, producing an abundance of meta-economics (philosophy, methodology, and history of thought), but few substantive results. Whatever Austrian economists have that is worth saying should be simply be addressed to the broader economics profession, which (in spite of itself) remains eager for original, true, and substantive ideas.
He doesn't say that Austrian economists are always wrong, he says that even when they're right their works do not justify a completely different economic paradigm. The fact that anecdotally you saved some money by following their advice doesn't really contradict that IMO.
I don't agree with Prof Caplan on a lot of things but generallly respect his intellect. But I was very surprised and disappointed to read his views here on alcoholism being a matter of choosing "a beverage over one's family" rather than a legitimate medical issue.
>Of course, if the problem is just inequality, then that’s one case where I would say there’s all sorts of inequality, so why is that actually something that is so bad the government needs to do something about it? Again, it’s different if you have people starving to death versus not being happy that they’re getting paid 5 percent less than what they ought to be getting paid.
Okay so because there is inequality and some dimensions are worse than other, government shouldn’t do anything about anything.
And if you’re not a privileged elite male who was educated, that’s just too bad because you are not the only one. The government should just leave everyone alone, and if some people are discriminated against, then his study on incomes of black males is enough to refute any kind of inequality in the workplace (or anywhere else for that matter).
I’m trying to paraphrase what I understood. How does anyone, regardless of their political biases, respect this guy or his “intellect”? I know I sound harsh, but please enlighten me.
For the record, I’m socially liberal but fiscally conservative.
I enjoyed this article because it provided a level-headed and analytical critique of a topic that is mired in politically charged emotion.
For example, sections 2.1 and 2.2 resonated with me because, as a mathematician, because I can plainly see how the algebraic structure chosen by Rothbard for representing utility is going to severely impact the reasonableness of his models.
There are several other compelling examples, where anyone who has done a bit of mathematical modeling can see that the neoclassical school of thought is simply providing better tools for achieving the desired outcomes.
> while Hayek turned almost entirely to philosophy, law, and intellectual history after the 1930's
If he's claiming The Use of Knowledge in Society (1942) isn't about economics, then you have a very narrow view of economics. I mention it only because this essay was such a major contribution.
To take your example, Section 3.1 critiques The Use of Knowledge in Society via a critique of Human Action (which was published by Mises nearly a decade after 1942). Many of the observations in Section 3 (and 3.1 especially) are directly relevant to The Use of Knowledge in Society.
I tend to see MMT as on the right track in seeing money/finance as a system of control. In that the limits are never financial but resource, technological, social and political.
0) If you, as a layman (and why not, if you're an expert as well), are going to have an informed opinion on economic issues, you owe it to yourself as well as whoever you're going to discuss it with, to educate yourself broadly and study both sides of an issue. Seems that too many people who discuss on the internet happened for some random reason to read a book, then (maybe) continue to read books in the same vein, and are subsequently unable to look out of the ideological pigeonhole they have jumped into. Don't become that old bore that rants endlessly about "libtards/global financial capitalism/whatever" at xmas dinner, while the rest of your family sits there in an embarrassed silence wishing you to drop dead or at least STFU so that the kids can have their presents! For some background that explains the thought behind MMT, I can recommend Mitchell & Fazi, Reclaiming the State.
1) I don't understand the obsession with the gold standard that some in the Austrian school seem to have. Or if not gold, some other valuable commodity, energy, basket of commodities etc. Whatever. Bretton Woods is over, deal with it. The only underlying reason I've been able to find is that to people who dream of a nightwatchman-state, the notion of a state with fiscal and monetary power is poison.
2) The core of MMT, namely the description of the macroeconomics of a sovereign government with a monopoly on issuing its own floating fiat currency, is not new per se, but it's explained maybe slightly differently than usual, but it explains it pretty well. And given how confused people seem to be about macroeconomics, fiscal policy, and fiat currencies, being able to explain it clearly is a big deal.
3) As for the policy implications of MMT. MMT teaches us that in terms of monetary and fiscal policy governments are not as constrained as is commonly thought (the usual anti-MMT slurs of "printing your way to Nirvana" and subsequent hyperinflation tells more about the ignorance of whoever is presenting those). Now, most of the MMT proponents are pretty left-leaning, so they tend to want to use that extra fiscal space for various social programs, but one has to keep in mind that's a policy choice and not something inherent in the theory itself. Another policy choice would be to buy weapons and engage in various foreign policy adventures, but again, nothing that MMT per se prescribes.
Any economic school of thought holds the answer to unknowns in other economic school of thoughts. The idea of following a specific school always struck be as desparate. Any economics thinker worth their salt would never subscribe to just one school as they would know, at least today, that the world isnt predictable and there are fare more externalities to considder. This is also why i am a big opponent of policy guided by economists. They should serve as advisors not policy makers which is often the case today.
Imagine you're the President and the economy just collapsed. You have two economists in your office offering advice. One tells you to spend a lot of money and go into debt to get the economy working again and the other tells you to cut back on spending and otherwise do nothing. Which one are you going to listen to? Obviously the first one's advice would be a lot more popular than the second.
If we begin with the assumption that politicians are selfless servants of the people who only want to do what's best for society at large in the long run, then you would conclude that politicians will carefully examine the theories and methods of the two economists' schools of thought. If we begin with the assumption that everyone, including politicians, is primarily self-interested, then you would conclude that a politician would just do what's popular with no regard for how the two economists arrived at their advice.
I believe people are primarily self-interested. From that perspective none of this discussion about economic theories matters because politicians are just going to do what's popular anyway.
The proposition that people are primarily self-interested is therefore in my opinion the only idea of value that's come out of the study of economics, which is the study of human behavior after all.
As a layman, I think Austrian school lacks of quantitive ways to do repetitive applied work for fields and industries compared to the mainstream schools. And many of the tools and information sources were not available at Mises' time. Our society is based on calculation. Economics as a tool for management teams has to provide effective calculation for as many things as possible. People communicate and make decisions based on the calculation framework and the results. The world's economic states are modelled in a more or less approximate way. The school that can offer more "fact-based" and measurable data and results are welcomed by decision makers and the people work for them. Organizations need them. When many of organizations are using similar frameworks, the can communicate with other similar parties. It's easier for parties to make their data and results compatible to their own system. Just some random thoughts from a layman. And yes, I love Mises' work. But the tooling is missing for a lot of applications. There can be very limited actionable decision you can make if you adopt it. I'm probably misinformed, misunderstood and biased. Just some of my observations and thoughts.
You make good points, the main reason these tools don’t exist , however, is that I thought Mises and others felt that economics was about logical deduction from the axioms of human action - Praexology. and thus there was no need for math or empiricism to validate the theories - they were Prima facie correct.
I'm not an economist, but as a left of center libertarian I'd caution that an obsession with metrics and measurement can introduce biases (often biases that encode subtle class-based prejudices) about what one is measuring with an implicit mentality that what is being measured is an accurate metric for the desired subjective outcome, which very dangerously can slide into a mindless optimization exercise of the metric that gets so detected from the original intent that it begins optimizing for something antithetical. It's not quite praexeology, but I definitely came to this belief through listening to critical rethinking of econometrics by Austrians.
> But the main fact is that there are no constant relations.
> Economics is not, as ignorant positivists repeat again and
> again, backward because it is not "quantitative."
> It is not quantitative because there are no constants.
> Statistical figures referring to economic events are historical data. They tell us what happened in a nonrepeatable historical case.[27]
Last year, I finished The Great Transformation by Karl Polyani, published in 1944 (the same year Hayek published The Road to Serfdom), Judea Pearl's The Book of Why and Mastering Metrics by Angrist and Pischke.
The methodology of Austrian economics seems completely unscientific, I believe a part of praxeology is disregarding empirical evidence(?). Reminds me of something like Ayn Rand's egoism. It just seems to me you can't persuasively argue a philosophical theory without empirical justification
I have a more favorable view towards Polyani's methodology, who largely draws on historical sources. The historical approach seems at least some what grounded compared to the pure theory used in much of economics
Economic theory and statistics can't answer questions like "How much of an effect can we expect if we were to raise minimum wage by one dollar an hour".
A randomized control trial is the gold standard, and the way forward seems to be more experiments like the RAND Health Insurance Experience and the Oregon Health Insurance Experiment. Even these results and their policy implications are subject to debate, so how could pure theory even get close?
However, randomized experiments in the social sciences often aren't feasible for cost or ethical reasons. So econometrics has developed tools to work on natural experiments, or even observational data, like Differences-in-Differences, Instrumental Variables, Regression Discontinuity designs.
Even a brief skim of methodological considerations in economics reveals how much uncertainty there is. I am only a fan of economics (only high school and college microeconomics) so I'm likely wrong
>Austrians argue that that empirical data itself is insufficient to describe economics; that consequently empirical data cannot falsify economic theory; that logical positivism cannot predict or explain human action; and that the methodological requirements of logical positivism are impossible to obtain for economic questions. Ludwig von Mises in particular argued against empiricist approaches to the social sciences in general, because human events are unique and "unrepeatable".
>The methodology of Austrian economics seems completely unscientific, I believe a part of praxeology is disregarding empirical evidence(?).
Praxeology is supposed to be an application of logic* where economic analysis is based purely on specific axioms and propositions. In other words, praxeology is supposed to be as empirical as mathematics and a decent amount of mainstream economics. IIRC, in Human Action, Mises argues Economics is like (Euclidean) geometry, echoing Kant's rationalism. I believe then in Man, Economy, and State, Rothbard argues for term logic in natural language as opposed to predicate logic represented symbolically. It's good for laymen and philosophy-fans but bad for introducing implicit assumptions (basically Krugman's criticism).
Polanyi’s work is a masterpiece and a welcome antedote to those anarcho-capitalists that believe that all of life’s action IS embodied in the market. Or that the gold standard was/is a sustainable idea.
Good article, but a bit too long for me to participate into discussion. Will read the rest of it later.
This debate between neoclassicals and austrians reminds me of logicians and people from static typing systems endlessly arguing about which logic or type system is the best and complete, without flaws, inconsistencies and paradoxes. They are trying to reconstruct the world from axioms but get stuck at the very bottom in these petty debates.
In the meantime we have people which just whip out Python or other dynamic language, accept its flaws, but produce some real working software which powers the world. Similarly in logic, people just infer generalizations from examples (inductive reasoning) instead trying to build axiomatic truth so that they can reason deductively.
My 'real world' comments to that economic debate.
1. subjectivity. Humans share 99% of DNA not only among themselves but also with pigs. It's evident that some people have subjective preferences, but vast majority of human needs are similar. Housing and food are obviously the largest markets out there
2. welfare, ie. connecting micro to macro
When you observe microparticles of gas (motion, collisions, velocity) you don't get macro (temperature, pressure, density) values until you put the gas into a container, ie. introduce a boundary condition. Similarly for economics, you can observe individual collisions (transactions) but unless you observe what happens at the boundary (scarcity of certain goods) you won't make it to macro values (wealth distribution, poverty)
3. monopoly. You get monopoly when you constrain supply of certain good in the economy. This can happen artificially (pharma industry preventing other companies from entering the market because of inexperience and safety). Or naturally (network effects - all utility (electricity, gas, water, railroad, internet providers, law and justice) companies eventually merging into one). Because of natural monopolies you need a government, but only for those.
The last point about monopolies is the georgist (Henry George) critique of both neoclassicals and austrians. The monopolies are the cause of poverty and unequal wealth distribution, because in the money eventually ends up in the black holes (monopolies) and rarely make it out. The biggest market of all - housing - is a perfect example. All the money ends up parked in real estate.
George back then proposed a remedy. To price 'private property' as a service. The private property owners are those consuming the government services. Eg. Houses require guarding by firefighters, police against squatters and court system to resolve disputes. These services should be financed from taxes based on property then. But nowadays they are financed from taxes on labor (income tax) and consumption (vat, sales taxes). In other words those people that don't own anything pay for the services of those that do own.
It's likely no conspiracy, it's just one of those cases where people measure the thing which is easier to measure, not the one which is important to measure.
[+] [-] kriro|7 years ago|reply
I personally like the Austrian framework because I find it aesthetically pleasing (I guess I'm a sucker for deduction). Some of the writing is simply intellectually interesting and also very scholastic for lack of a better word. For example, even if you completely disagree with the analysis I'd argue that "America's Great Depression" is a very good read simply from an intellectual point of view and "Man, Economy, State" is a very good tome that contains a framework of thought. I also enjoy the science theoretical musings quite a bit. The writing on Aristotelian ontology is very good for example.
There's also works where I constantly shake my head at the implications and political conclusions but intellectually I still love them. "The Ethics of Liberty" is probably the clearest example of this. Do I think that letting a baby starve to death because it is basically a parasite is morally desirable: no. Do I find the idea of trying to deduce an entire ethical framework from first principles fascinating and the way it is done interesting: yes
There are lots of things about AE that I find irking but the core theory and the science theoretical basis is very interesting/intriguing to read.
I also like that pretty much everything is readily available on mises.org. I wish all "schools of thought" would be this forward thinking.
[+] [-] jcfrei|7 years ago|reply
[+] [-] st1ck|7 years ago|reply
I wonder if there is anyone less deranged than Rothbard working within the same deontological framework. I honestly struggled reading "The Ethics of Liberty" because I can't accept his base principles. I was hoping to find some kind of justification for homestead principle, but he basically says it's self-evident. Maybe for American libertarians it is, but for most people it's not.
David Friedman's consequentialist approach is probably less aesthetically pleasing, but at least his "The Machinery of Freedom" shows that you don't have to be a lunatic to be an AnCap.
[+] [-] stillbourne|7 years ago|reply
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[+] [-] dmichulke|7 years ago|reply
Since none of the are integral to Austrian economic theory but a few of them are against opinions of Mises and Rothbard (and I wouldn't even disagree with the author's view points here), it's comparable to saying "Darwin said you should always explore distant nature in a naval vessel and he believed in God, therefore his theories are wrong".
To substantiate:
1. Utility Functions vs. Value Scales
Everyone can use the representation of utility he wants, it just has to be decided whether it's appropriate in the case he applies it to or not. I assume small quantities of every day items (say potatoes) are easier modeled in continuous well-defined functions while preferences for the quantity of shopping malls is much harder to model that way. Neither means the other is necessarily wrong but as always modelling is not the same as reality.
2. Indifference
I can personally see how I am indifferent to a few things but it's unlikely you see it in my actions (other than watching me flip a coin). Now how is that again related to Austrian Economics?
3. Continuity
Basically Mises and Rothbard are arguing against modelling various dimensions as continuous functions. I see how their claim can be true under some circumstances and how it can be useful under others.
So again how is that relevant to being (or not) an Austrian Economist?
4. Welfare Economics
> Rothbard could only claim the welfare effects of government intervention upon "social utility" are indeterminate
Agreed. Government is not necessarily bad.
The rest of the discussion there is about "assumptions": Whether and how a third party affects a voluntary exchange.
Again, this is not at all necessary for Austrian economics, and attacking it is an exercise in futility.
5. Subjectivism
This argument is not an argument, it's about word usage frequencies and how they imply things. WTF
[+] [-] notahacker|7 years ago|reply
As for your points:
1. The position that ordinal and cardinal representations of utility are both valid in certain circumstances and in practice identical economic models can often be derived from them is the mainstream economics one which the Mises strand of Austrianism rejected. If you believe that "neither means the other is necessarily wrong" you're rejecting one of their core assumptions.
2. Indifference is pretty easily reflected in actions. Obvious example of a revealed preference of indifference between two items: "Which one?" "Either one" (sure, I'll accept that in some cases a person might delegate a decision because they have a specific preference to give the delegate responsibility or to be surprised by the choice which is greater than their preference for one item over the other, but a lot of the time it's clearly genuine indifference between items. I'm not trying to impress the store clerk when I don't care which no-name manufacturer my $1 widget comes from). If Austrian economists insist on (re)defining economics as a set of immutable laws of human action, it helps not to have such obvious counterexamples to one of their claims...
3. Austrian Economists following the approach of Mises insist that modelling dimensions as continuous functions is never acceptable. ergo if you believe continuous dimensions are sometimes a useful modelling assumption, that's a pretty good reason not to be an Austrian economist (even if you think their objections to the representation of some dimensions as continuous differentiable functions are valid; it's not like Austrian economists are the only people offering such critiques)
4. Considering that the thrust of Mises/Rothbard's arguments is that government is [almost always] bad for allocation of resources, it's a pretty major shortcoming that based on their own foundational assumptions they can't actually argue that even the most egregious examples of government misallocation of resources actually are misallocation of resources.[1] (Many mainstream economists also argue against the validity of interpersonal comparisons of utility, but could at least have some grounds for argument that lesser quantities of output under a price-fixing regime are suboptimal on the grounds of Kaldor/Hicks inefficiency since they're willing to consider non-revealed preferences.)
5. Caplan doesn't elaborate on this particularly well, but it's a standard claim by Austrian economists that mainstream approaches involving quantitative analysis aren't compatible with the concept that value is subjective. It's also pretty well established that many classes of quantitative mainstream model work pretty well with Austrian-style subjective preferences (viz. based on ordinal preferences within a budget constraint).
[1]obviously Austrians have lodged other objections like claiming that allocation of resources for production in the absence of a price system is "impossible" (clearly incorrect) rather than merely less efficient, and generally subscribe to ethical arguments that government intervention is "coercive" except when used to prevent people from using resources other people claim ownership over. But not being able to say "West Germany produced better economic outcomes for its citizens than East Germany, or even than medieval Prussia" is a pretty major disadvantage in an economic theory.
[+] [-] roymurdock|7 years ago|reply
1. author argues that Rothbard's austrian "value scale" approach is unable to derive the key income and substitution effects used in neoclassical modeling, but that Rothbard adds them into his framework ad hoc without properly deriving them
this has nothing to do with the reality of modeling the utility of potatoes for individuals vs. shopping malls for society, rather deriving key properties that are used in logical predictive modeling (eg my wages increase ∴ consumption curve shifts right BY income effect)
2. yeah, not related to any precepts of austrian or neoclassical economics, more of a philosophical discussion of how preferences must be revealed by action in econ rather than introspection, freezing time, or flipping a coin every time you're indifferent. he's rejecting both of their rejections of an implication of neoclassical theory, but it's not practically important, just a reflection of caplan's beliefs
3. rothbard and mises reject the notion that preferences are continuous, which means they can't be neatly drawn on 2D graphs and used in calculus. Rothbard continues to use diagrams and calculus somewhat hypocritically, while Mises doesn't use diagrams. author thinks (as do most economists) that graphing utility and preference functions as continuous and therefore being able to do useful things such as find their intersections, take their derivatives, etc. far outweighs the utility of describing them in non-continuous terms
author thinks all austrian economists reject continuous micro functions, which is untrue (just Rothbard and Mises) but supports his larger theory that austrian economics is not as useful/actionable as neoclassical
4. author is defending the principle of pareto efficiency, another fundamental neoclassical principle which allows economists to measure how free market distortions such as communism and rent control effect different groups within the economy. author is criticizing rothbard's framework which only allows one to call acts of government welfare "indeterminate" and thus be unable to measure their effect and get things done
5. defending the technical definition of "efficiency" again because the technical definition is needed to construct proofs and get things done
basically author is saying neoclassical is much more useful for getting things done with economics, and that rothbard and mises (who he takes to represent the whole school of austrian econ) didn't provide many useful tools from which others could predict/model/build off
[+] [-] SquishyPanda23|7 years ago|reply
Friedman had something similar to say about Hayek:
"[I am] an enormous admirer of Hayek, but not for his economics. I think Prices and Production is a very flawed book. I think his [Pure Theory of Capital] is unreadable. On the other hand, The Road to Serfdom is one of the great books of our time".
From https://en.m.wikipedia.org/wiki/Friedrich_Hayek
[+] [-] mikeyouse|7 years ago|reply
That list would make many at Mises scream bloody murder. Man our discourse is just so petty.
[+] [-] narrator|7 years ago|reply
[+] [-] freedomben|7 years ago|reply
> I was able to attend the 1989 Mises Institute summer seminar at Stanford, where I met Murray Rothbard and many of the leading Austrian economists for the first time. It is now eight years later;
[+] [-] yig|7 years ago|reply
[+] [-] soVeryTired|7 years ago|reply
Utility can't be measured directly, and must be inferred from a consumer's behaviour. It's begging the question to infer an agent's utility function from their behaviour and to simultaneously conclude that the behaviour maximises the utility function: that's true by construction.
On the other hand, we can assume a functional form for an agent's utiilty for a given basket of goods. I guarantee that real-world preferences are more complicated than any function we can write down, so any prediction we make about an agent's preferences will almost certainly be wrong.
All in all, utilities are a nice toy, but aren't really any use outside of the world of theory.
[+] [-] roymurdock|7 years ago|reply
eg 1 banana = 10 utils, 1 apple = 5 utils, 1 car = 100 utils, etc
utils are just a proxy for money and/or time which are interchangeable through wages paid for labor
money is our real world way of valuing the utility of goods, labor, and more generally time (the scarcest resource of them all)
utility functions will never describe an individuals preferences perfectly (hell you couldn’t perfectly describe the utility of any of the transactions you make) but they’re useful when describing and predicting aggregate behavior, especially when fed a lot of consumer data (higher confidence)
all of game theory also uses the concept of utility to weigh payoffs and there are many many real world applications of game theory
its not perfect but no models are perfect, that’s why we have statistics and probability theory to guide us as well
[+] [-] throwaway_98554|7 years ago|reply
This left Mises respected but a laughing stock without a position. Unfortunately he did not understand what he had stumbled upon, and he could have reformed economics. But he failed. He failed because he was committed to his dogma, and committed to his error."
https://www.quora.com/What-are-some-criticisms-of-the-Austri...
[+] [-] jonathanstrange|7 years ago|reply
But does it really make sense to use a nonlinear function to represent ordinal preferences?
As a philosopher working in the so-called theory of value structure - basically, about the meaning of 'better than' - my criticism of preference modelling would be different and applies to both camps. First, if the modelling is descriptive we know that people have e.g. non-transitive preferences and completeness also doesn't hold. Second, there are also pretty good arguments against the transitivity of 'better than' from a normative perspective that at least need to be defused somehow. IMHO, the right solution points towards conditional preferences and/or lexicographic decision procedures. In a nutshell, multiple criteria interact in complicated ways and the assumption that the outcome of aggregating them is a neat complete preorder is generally not warranted. (And there is plenty of work on nontraditional decision theory by e.g. Fishburn to support alternatives.) Third, there are good arguments why some of our evaluative comparisons between items are cardinal, at least on an interval scale, whereas others are purely ordinal. I understand why this would be an undesirable point of view for an economist, though, since there is no known rationally and normatively justifiable way of aggregating ordinal and cardinal utilities into a meaningful overall assessment. From a measurement-theoretic perspective, an overall ordinal utility is the best you can get in this case. There seems to be a certain tendency of economists to dismiss certain plausible views because they are technically undesirable rather than on the basis of substantive arguments.
Another thing is that as far as I can see, economists who presume ordinal utilities do not seem to care enough about Arrow's Theorem in contexts with multiple attributes. At least they should make clear that IIA ought not hold when ordinal preferences are aggregated.
[+] [-] soVeryTired|7 years ago|reply
I can't think of one off the top of my head, and the classical economic argument is that non-transitive preferences would create a 'happiness pump' where I get stuck in a loop trading one thing for another and feeling good about the trade every time.
[+] [-] twanvl|7 years ago|reply
But I believe in general only linear transformations preserve all aspects of a utility function, when you start to look at the expected utility of a bet with probability p of outcome a and probability (1-p) of outcome b, which has expected utility E[U] = pU(a)+(1-p)U(b). I can imagine that it is harder to accept that this view of utility functions actually models human behavior.
[+] [-] tobmlt|7 years ago|reply
https://mises.org/wire/caplan-and-responses
Note Caplan replies to some of this and it's linked in the same place. Reader beware - I do not recall the jist of it all as it's been some time (~10 yrs) since I last saw this. Interestingly, Caplan has a profile on Mises.org: https://mises.org/profile/bryan-caplan
Cheers.
Edit, more Caplan stuff I find worth linking http://econfaculty.gmu.edu/bcaplan/anarfaq.htm#part18
[+] [-] mark_l_watson|7 years ago|reply
This seems a little crazy to me. I think there is a world of difference between current economic philosophy that runs the US-centered world and Austrian Economics as depicted on the Mises web site.
I am not an economist but I do sometimes read the Mises.org web site and until recently I made monthly contributions to support the site.
I credit Mises.org with information that led me to divest my retirement accounts out of the stock market in 1997. That saved me a lot of money.
[+] [-] simias|7 years ago|reply
>I conclude that while self-labeled Austrian economists have some valid contributions to make to economics, these are simply not distinctive enough to sustain a school of thought. The task of developing an alternate Austrian paradigm has largely failed, producing an abundance of meta-economics (philosophy, methodology, and history of thought), but few substantive results. Whatever Austrian economists have that is worth saying should be simply be addressed to the broader economics profession, which (in spite of itself) remains eager for original, true, and substantive ideas.
He doesn't say that Austrian economists are always wrong, he says that even when they're right their works do not justify a completely different economic paradigm. The fact that anecdotally you saved some money by following their advice doesn't really contradict that IMO.
[+] [-] AndyMcConachie|7 years ago|reply
https://www.washingtonpost.com/local/education/george-mason-...
[+] [-] soVeryTired|7 years ago|reply
[+] [-] freedomben|7 years ago|reply
[+] [-] thedailymail|7 years ago|reply
[+] [-] throwaway98121|7 years ago|reply
>Of course, if the problem is just inequality, then that’s one case where I would say there’s all sorts of inequality, so why is that actually something that is so bad the government needs to do something about it? Again, it’s different if you have people starving to death versus not being happy that they’re getting paid 5 percent less than what they ought to be getting paid.
Okay so because there is inequality and some dimensions are worse than other, government shouldn’t do anything about anything.
And if you’re not a privileged elite male who was educated, that’s just too bad because you are not the only one. The government should just leave everyone alone, and if some people are discriminated against, then his study on incomes of black males is enough to refute any kind of inequality in the workplace (or anywhere else for that matter).
I’m trying to paraphrase what I understood. How does anyone, regardless of their political biases, respect this guy or his “intellect”? I know I sound harsh, but please enlighten me.
For the record, I’m socially liberal but fiscally conservative.
[+] [-] throwawayjava|7 years ago|reply
For example, sections 2.1 and 2.2 resonated with me because, as a mathematician, because I can plainly see how the algebraic structure chosen by Rothbard for representing utility is going to severely impact the reasonableness of his models.
There are several other compelling examples, where anyone who has done a bit of mathematical modeling can see that the neoclassical school of thought is simply providing better tools for achieving the desired outcomes.
[+] [-] baby_wipe|7 years ago|reply
If he's claiming The Use of Knowledge in Society (1942) isn't about economics, then you have a very narrow view of economics. I mention it only because this essay was such a major contribution.
[+] [-] throwawayjava|7 years ago|reply
He's not.
To take your example, Section 3.1 critiques The Use of Knowledge in Society via a critique of Human Action (which was published by Mises nearly a decade after 1942). Many of the observations in Section 3 (and 3.1 especially) are directly relevant to The Use of Knowledge in Society.
[+] [-] SubiculumCode|7 years ago|reply
[+] [-] Gibbon1|7 years ago|reply
[+] [-] jabl|7 years ago|reply
0) If you, as a layman (and why not, if you're an expert as well), are going to have an informed opinion on economic issues, you owe it to yourself as well as whoever you're going to discuss it with, to educate yourself broadly and study both sides of an issue. Seems that too many people who discuss on the internet happened for some random reason to read a book, then (maybe) continue to read books in the same vein, and are subsequently unable to look out of the ideological pigeonhole they have jumped into. Don't become that old bore that rants endlessly about "libtards/global financial capitalism/whatever" at xmas dinner, while the rest of your family sits there in an embarrassed silence wishing you to drop dead or at least STFU so that the kids can have their presents! For some background that explains the thought behind MMT, I can recommend Mitchell & Fazi, Reclaiming the State.
1) I don't understand the obsession with the gold standard that some in the Austrian school seem to have. Or if not gold, some other valuable commodity, energy, basket of commodities etc. Whatever. Bretton Woods is over, deal with it. The only underlying reason I've been able to find is that to people who dream of a nightwatchman-state, the notion of a state with fiscal and monetary power is poison.
2) The core of MMT, namely the description of the macroeconomics of a sovereign government with a monopoly on issuing its own floating fiat currency, is not new per se, but it's explained maybe slightly differently than usual, but it explains it pretty well. And given how confused people seem to be about macroeconomics, fiscal policy, and fiat currencies, being able to explain it clearly is a big deal.
3) As for the policy implications of MMT. MMT teaches us that in terms of monetary and fiscal policy governments are not as constrained as is commonly thought (the usual anti-MMT slurs of "printing your way to Nirvana" and subsequent hyperinflation tells more about the ignorance of whoever is presenting those). Now, most of the MMT proponents are pretty left-leaning, so they tend to want to use that extra fiscal space for various social programs, but one has to keep in mind that's a policy choice and not something inherent in the theory itself. Another policy choice would be to buy weapons and engage in various foreign policy adventures, but again, nothing that MMT per se prescribes.
[+] [-] ThomPete|7 years ago|reply
[+] [-] candiodari|7 years ago|reply
Surely I'm misunderstanding something here.
[+] [-] feenix566|7 years ago|reply
If we begin with the assumption that politicians are selfless servants of the people who only want to do what's best for society at large in the long run, then you would conclude that politicians will carefully examine the theories and methods of the two economists' schools of thought. If we begin with the assumption that everyone, including politicians, is primarily self-interested, then you would conclude that a politician would just do what's popular with no regard for how the two economists arrived at their advice.
I believe people are primarily self-interested. From that perspective none of this discussion about economic theories matters because politicians are just going to do what's popular anyway.
The proposition that people are primarily self-interested is therefore in my opinion the only idea of value that's come out of the study of economics, which is the study of human behavior after all.
[+] [-] LiweiZ|7 years ago|reply
[+] [-] parasubvert|7 years ago|reply
[+] [-] dnautics|7 years ago|reply
[+] [-] stuaxo|7 years ago|reply
> But the main fact is that there are no constant relations. > Economics is not, as ignorant positivists repeat again and > again, backward because it is not "quantitative." > It is not quantitative because there are no constants. > Statistical figures referring to economic events are historical data. They tell us what happened in a nonrepeatable historical case.[27]
[+] [-] f00_|7 years ago|reply
The methodology of Austrian economics seems completely unscientific, I believe a part of praxeology is disregarding empirical evidence(?). Reminds me of something like Ayn Rand's egoism. It just seems to me you can't persuasively argue a philosophical theory without empirical justification
I have a more favorable view towards Polyani's methodology, who largely draws on historical sources. The historical approach seems at least some what grounded compared to the pure theory used in much of economics
Economic theory and statistics can't answer questions like "How much of an effect can we expect if we were to raise minimum wage by one dollar an hour".
A randomized control trial is the gold standard, and the way forward seems to be more experiments like the RAND Health Insurance Experience and the Oregon Health Insurance Experiment. Even these results and their policy implications are subject to debate, so how could pure theory even get close?
However, randomized experiments in the social sciences often aren't feasible for cost or ethical reasons. So econometrics has developed tools to work on natural experiments, or even observational data, like Differences-in-Differences, Instrumental Variables, Regression Discontinuity designs.
Even a brief skim of methodological considerations in economics reveals how much uncertainty there is. I am only a fan of economics (only high school and college microeconomics) so I'm likely wrong
[+] [-] minikites|7 years ago|reply
That's exactly it, it's more of a religion you have to accept on faith as opposed to a useful model for governing a society.
https://en.wikipedia.org/wiki/Praxeology
>Austrians argue that that empirical data itself is insufficient to describe economics; that consequently empirical data cannot falsify economic theory; that logical positivism cannot predict or explain human action; and that the methodological requirements of logical positivism are impossible to obtain for economic questions. Ludwig von Mises in particular argued against empiricist approaches to the social sciences in general, because human events are unique and "unrepeatable".
[+] [-] viburnum|7 years ago|reply
[+] [-] 2038AD|7 years ago|reply
Praxeology is supposed to be an application of logic* where economic analysis is based purely on specific axioms and propositions. In other words, praxeology is supposed to be as empirical as mathematics and a decent amount of mainstream economics. IIRC, in Human Action, Mises argues Economics is like (Euclidean) geometry, echoing Kant's rationalism. I believe then in Man, Economy, and State, Rothbard argues for term logic in natural language as opposed to predicate logic represented symbolically. It's good for laymen and philosophy-fans but bad for introducing implicit assumptions (basically Krugman's criticism).
* While I think logic isn't empirical some people disagree https://en.wikipedia.org/wiki/Is_Logic_Empirical%3F
[+] [-] parasubvert|7 years ago|reply
[+] [-] snidane|7 years ago|reply
This debate between neoclassicals and austrians reminds me of logicians and people from static typing systems endlessly arguing about which logic or type system is the best and complete, without flaws, inconsistencies and paradoxes. They are trying to reconstruct the world from axioms but get stuck at the very bottom in these petty debates.
In the meantime we have people which just whip out Python or other dynamic language, accept its flaws, but produce some real working software which powers the world. Similarly in logic, people just infer generalizations from examples (inductive reasoning) instead trying to build axiomatic truth so that they can reason deductively.
My 'real world' comments to that economic debate.
1. subjectivity. Humans share 99% of DNA not only among themselves but also with pigs. It's evident that some people have subjective preferences, but vast majority of human needs are similar. Housing and food are obviously the largest markets out there
2. welfare, ie. connecting micro to macro When you observe microparticles of gas (motion, collisions, velocity) you don't get macro (temperature, pressure, density) values until you put the gas into a container, ie. introduce a boundary condition. Similarly for economics, you can observe individual collisions (transactions) but unless you observe what happens at the boundary (scarcity of certain goods) you won't make it to macro values (wealth distribution, poverty)
3. monopoly. You get monopoly when you constrain supply of certain good in the economy. This can happen artificially (pharma industry preventing other companies from entering the market because of inexperience and safety). Or naturally (network effects - all utility (electricity, gas, water, railroad, internet providers, law and justice) companies eventually merging into one). Because of natural monopolies you need a government, but only for those.
The last point about monopolies is the georgist (Henry George) critique of both neoclassicals and austrians. The monopolies are the cause of poverty and unequal wealth distribution, because in the money eventually ends up in the black holes (monopolies) and rarely make it out. The biggest market of all - housing - is a perfect example. All the money ends up parked in real estate.
George back then proposed a remedy. To price 'private property' as a service. The private property owners are those consuming the government services. Eg. Houses require guarding by firefighters, police against squatters and court system to resolve disputes. These services should be financed from taxes based on property then. But nowadays they are financed from taxes on labor (income tax) and consumption (vat, sales taxes). In other words those people that don't own anything pay for the services of those that do own.
It's likely no conspiracy, it's just one of those cases where people measure the thing which is easier to measure, not the one which is important to measure.