The invisible hand is God's hand.
So, quoting Mises: "Fort the agnostic, atheistic, and antitheistic historians and economists there is no need to refer to Smith's and Bastiat's invisible hand." Theory and History, page 169.
Friday, August 20, 2010
Wednesday, August 18, 2010
In defense of extreme apriorism
It is not the task of the economist to determine whether actual equilibrium is going to be attained or not. His task comes to and end once he has correctly posed the role of the arbitrager in exclusively attaining such equilibrium as well as the enunciation of some general conditions from here on.
But when we, understandably anxious of arriving at specific equilibria, pretend to use economics to test or falsify empirical evidence of such equilibria or paths to equilibria, we ar at a total loss. And, as expected, the unfair condemnation of economics for no being "exact" or even useful at all doesn't take long to come out.
It is in that sense that Hayek is right in his 1937 paper Economics and Knowledge. Effectively, if you don't make certain assumptions about information, you are not going to be able to find equilibria. However, he is wrong in pretending that it is up to economics (the pure logic of choice) the accomplishment of this task. The methods and ways in which assumptions about the obtaining and coordination of information are entrepreneurial and far away from the method and traditional aim of economics. If you agree that that empirical task is a task of econonomics, you are compelled to accept as part of the tasks of economics the calculation of how to throw a ball in order to deceive a rival player and so scoring a goal or the successful bargain of the price of a Holstein cow in the town of Coronado, Costa Rica. Intuitively, you do not expect neither to require from an expert soccer player or a cattle merchant to take courses in what usually is taught in an economics course nor that an economist qua economist is prepared to score goals or evaluate cattle. Of course, you could require those abilities from whoever you call a competent economist and call this a merely semantic problem.
It is precisely difference about assumptions on information, particularly the non-coercive stickyness of prices which separate new Keynesianism from other brands of economics. So, you should conclude that the relevant difference doesn't deal with economics; it is rather ultra-economic.
Finally, you have other formal attempts to deal with the coordination through equilibrium, particularly game theory. And, in this, case, you have to note that game theory it's seen not just as an extension of economics, but rather as a quite independent discipline useful in several fields.
But when we, understandably anxious of arriving at specific equilibria, pretend to use economics to test or falsify empirical evidence of such equilibria or paths to equilibria, we ar at a total loss. And, as expected, the unfair condemnation of economics for no being "exact" or even useful at all doesn't take long to come out.
It is in that sense that Hayek is right in his 1937 paper Economics and Knowledge. Effectively, if you don't make certain assumptions about information, you are not going to be able to find equilibria. However, he is wrong in pretending that it is up to economics (the pure logic of choice) the accomplishment of this task. The methods and ways in which assumptions about the obtaining and coordination of information are entrepreneurial and far away from the method and traditional aim of economics. If you agree that that empirical task is a task of econonomics, you are compelled to accept as part of the tasks of economics the calculation of how to throw a ball in order to deceive a rival player and so scoring a goal or the successful bargain of the price of a Holstein cow in the town of Coronado, Costa Rica. Intuitively, you do not expect neither to require from an expert soccer player or a cattle merchant to take courses in what usually is taught in an economics course nor that an economist qua economist is prepared to score goals or evaluate cattle. Of course, you could require those abilities from whoever you call a competent economist and call this a merely semantic problem.
It is precisely difference about assumptions on information, particularly the non-coercive stickyness of prices which separate new Keynesianism from other brands of economics. So, you should conclude that the relevant difference doesn't deal with economics; it is rather ultra-economic.
Finally, you have other formal attempts to deal with the coordination through equilibrium, particularly game theory. And, in this, case, you have to note that game theory it's seen not just as an extension of economics, but rather as a quite independent discipline useful in several fields.
Saturday, August 7, 2010
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