Over at Economist’s View there is an interesting piece from a book named “History of Economic Thought: A Critical Perspective”.
Now I don’t disagree with large parts of this. It is indeed fallacious to state that any CONCLUSION is value free – as it never is.
However, I feel that the piece mixes up its attack on the conclusions of the Austrian and Chicago school with the general neo-classical method – which is, in itself, closer to value free and objective. As the actual article says:
Their science applies everywhere because it applies nowhere. Most theorizing by these schools is purely tautological.
Now this may make the descriptions “unscientific”, but conveniently it also makes them value free. Remember, the purpose of these “tautologies” is to create statements that we can use to show relationships between things in logical terms – they create a framework that allows us to then apply value judgments and reach conclusions. Currently, this is one of the main roles of economists – to create a framework that can have value judgments added to it to create descriptions and predictions. Economists often move a step further and create testable hypotheses, hypotheses that are supposed to describe, or possibly even predict what is going on. However, another set of value judgments is then required to “prescribe” policy given these descriptions or predictions – this is a bigger step than some economists realise.
Still, for now let us take the implied “argument” that Austrian and Chicago economists are said to use in the above linked article, and see if we can adjust it to suit the way I see things 😛
So from the article we have this as the Chicago/Austrian school of thought:
- All human behavior involves choice.
- In any choice situation, whichever alternative is chosen involves gains and costs (whether explicit costs or implicit “opportunity” costs).
- Therefore, all human behavior involves exchange, since it involves acquiring gains in exchange for costs.
- All human beings choose rationally; that is, they exchange in such a manner as to maximize the excess of the utility of the gain over the disutility of the cost (or the utility forgone in the opportunity cost).
- Therefore, all choices are rational and represent the best possible alternatives among those available in the exchange process (the utilitarian neoclassicists have always avoided facing the issue of how capitalist society gives some individuals so many alternatives and others so few) .
- Since all choices, or exchanges (they amount to the same thing), are rational and maximize each chooser’s or exchanger’s utility, then total utility is always maximized .
- Therefore, free exchange in a capitalist society harmonizes all interests, maximizes utility, results in rational prices, results in efficient resource allocation, and, in general, automatically creates the best of all possible worlds.
- Furthermore, since all human activity is in reality exchange, each and every aspect of a capitalist society is rational and blissful.
This doesn’t sound to different to our initial view of neo-classical economics – except for a whole lot of extra, value-laden, terms.
The main problem here is that in this big description there is an important term missing – expected. The word “expected” is so important because it gives us the idea that something that is “ex-ante” optimal may not provide the best outcome “ex-post”.
If we look up above and place “expected” before utility at each point, suddenly the argument makes a lot more sense, up until point 6. Point 6 is missing true market failures, as a result we can’t say that total expected utility is maximised. Things go even further with points 7 and 8 – which are now just conclusions stemming from the framework.
Expectations, and information issues, then cause all sorts of issues with the allocation of resources etc, and paint a whole wide role for government.
As a result, the missing expectations and information in the model is the whole reason why the description of methodological individualism painted at the Economists View Blog makes little sense.
My view is that we should take the first six bullet points, put expected before each utility, realise that there is a role for “structure” in decision theory, and leave it at that. That is our common framework – from their our differing value judgments will lead us to different conclusions.