Sorry for the double post, but . . . Joe, you also said, "Now, as far as I know, no one has thought to develop a system of economic theory based on a Machlupian reading of Mises’s method." Well, I guess "system" is a big word. But my theory of Big Players builds on a Machlupian reading of Mises's method, and it does so *explicitly*. Big Players theory was directly inspired by Machlup's "Why Bother with Methodology?" It is a lot like Bob Higgs's theory of "regime uncertainty." I think Bob's first published statement of regime uncertainty was in 1997 in The Independent Review. The first major statement of Big Player theory was published in 1996 in a piece co-authored with Leland Yeager and appearing in Explorations in Economic History. If the theory of Big Players is good, then it is an example of "substantive" economics that comes *straight* out of Machlup's methodology.

Joe, You say “[N]either Machlup nor his followers developed a system of substantive economic propositions that was fundamentally distinct from postwar neoclassical theory and based on Mises's theoretical system as presented, e.g., in Human Action.” Huh? If you just look up “Machlup” in the index to Human Action you find three references to Machlup’s The Stock Market, Credit and Capital Formation. Mises credits Machlup with showing that the stock market does not “absorb capital.” At one point Mises, citing Machlup, says, “The notion that it is possible to pursue a credit expansion without making stock prices rise and fixed investment expand is absurd.” Machlup worked out the elasticities approach to the balance of payments and was thus an architect of the monetary approach to the balance of payments. Machlup’s theory was one of the main (maybe *the* main) rival to Alexander’s more or less “Keynesian” absorption approach to the balance of payments. By paying attention to who does what, Machlup was following Mises instead of reasoning with largely unanalyzed “Keynesian” aggregrates. Through the Bellagio group, Machlup was a central figure in 1) showing that economists were largely agree on the advantages of flexible exchange rates and 2) the actual move away from Bretton Woods and toward more flexible exchange rates. Machlup’s price theory text was deeply subjectivist as Richard Ebeling has pointed out in the past. It was, therefore, quite deeply Misesian. Sadly, Stigler’s text prevailed, but his microeconomic theory was quite Misesian and, I think, perfectly “substantive.” In particular I note his subjectivist analysis of competitive markets, which he called “polypolistic” markets. Machlup’s interest in and attention to “the production and distribution of knowledge in society” descends straight from the “intellectual division of labor” Mises identified in his orginial 1920 article on socialist calculation. Machlup was probably the first economist to identify the knowledge economy and its importance. And so on. Oh, happy is the man who sits Beside or at the feet of Fritz, Whose thoughts, as charming as profound, Travel beyond the speed of sound, All passing as speeds them up, Mach 1, Mach 2, Mach 3, Machlup. With what astonishment one sees A supersonic Viennese Whose wit and vigor, it appears, Are undiminished by the years -- Kenneth Boulding

Pete, I think you may be right about the arbitrage opportunity. Certainly, computability is about syntax and not semantics. On judgment in sports: Humans have to use judgment. Machines can use algorithms. In some cases of judgment or intuition the unconscious part of our thinking (be it pre-conscious, meta-conscious, or something else) may be running an algorithm and just reporting the output to the conscious mind. Thus, some cases of intuition may be perfectly algorithmic. It does seem unlikely that most of the judgment in sports would be algorithmic in that sense. But even assuming zero algorithmic content to such judgments, it may still be possible for a computer with its algorithms to make better decisions that an athlete, just as a computer can make better chess moves than a human chess master.

Yes to all that Barkley said. On the soccer pitch there are only three dimensions of movement for the ball at a given moment. No innovations will change that. The rules are fixed. The players can move in only so many different ways. Soccer is a static universe. The space of possible games is vast but unchanging over time. There is no particular reason robots could not be programmed to make good choices consistently, and to do so in such a way as to regularly defeat fallible humans. Robots would be immune to mental fatigue, overconfidence bias, and egoism. The "Austrian" argument on socialist calculation assumes a dynamic world in which you always have something new to learn. There is no calculation problem in a static world. Soccer is a static world.

I'm not sure what type of answer you're looking for, Pete. The world is a big complicated (and complex I would say!) place that is hard to understand. Evidence tends to under-determine theory. Scientists are no more truth seekers than bus drivers. (Analytical egalitarianism) They do a lot of signaling, especially signaling goodness. It is probably better to signal intelligence by pretending to master the social world than saying what a blooming buzzing confusion it is. OTOH maybe we liberal types are wrong, seeing as how the world is a big complicated place . . . I guess I'm just not sure what level of discourse we are on here. I do think "we" need to emphasize the broad facts of history. This is what Don Boudreaux does when he cracks open the 1975 Sears & Roebuck catalog. It is what Deirdre McCloskey does when she points to the economic-growth hockey stick. And it is what Andrei Shleifer did in "The Age of Milton Friedman." It is what Ayn Rand and co. did in, if I recall correctly, in "Capitalism the unknown ideal." You gotta work out all sorts of other stuff, too, but let us continue to relentlessly repeat the basic facts of economic growth. If it is true that the idea of anthropogenic global warming is in trouble as some have claimed, then "they" won't have much of a counter claim to "our" facts on growth. I should have mentioned Hans Rosling's washing machine. And Steve Pinker's book on declining violence. The persuasive empirics are mostly simple things that do not depend on fancy statistical techniques.

Not sure what your Fischer remark is about, Barkley, but at one point Summers said that in his class Fischer did not accept the idea of secular stagnation. And maybe we should note that Tyler's stagnation thesis is nothing about a negative equilibrium interest rate. It is a different stagnation thesis.

. . . as if Pete *was right* to see . . .

Paul Krugman took up the case for secular stagnation in his NYT column yesterday (11/17), flagging the same speech by Summers. http://www.nytimes.com/2013/11/18/opinion/krugman-a-permanent-slump.html?smid=fb-share&_r=0 It looks very much as if Pete to see Summers' talk as representing a new and important view in mainstream macroeconomics. To echo Pete: What are we going to do about it?

Thanks for posting that video, Pete, and drawing our attention to it. A hardy "hear, hear!" to taking Summers seriously. As we think about this stuff, let's remember that his empirical puzzle is seeming stagnation. The idea that the full-employment interest rate might be negative is Summers' conjectured explanation of the puzzle. It's his answer, not his question. My bias is to think that we should not go on about negative interest rates. Rather we should EITHER offer an alternative and more compelling explanation of the puzzle OR show empirically that there was no stagnation before the crash. If you just look at real GDP growth per capita, I don't see pre-crisis stagnation. I took data from this graph: http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=USARGDPC&s[1][transformation]=pc1 I then did 4, 5, and 10 year averages of them. I don't see a secular decline until after the crisis. Now, Summers is saying that we should have seen a crazy boom in the run-up to the crisis, so my little averaging exercise does not settle things. But personally it reinforces my a priori doubts that we had stagnation before the crisis. If we can show that stagnation applies only after the crisis, then it might be that the right place to go is something about confidence, Big Players, and regime uncertainty. And mainstream macroeconomics is very much moving in that direction with the literature on "uncertainty shocks." And that literature is mostly attributable to the index created by Baker, Bloom, and Davis. http://www.policyuncertainty.com/index.html Note, BTW, their two calls for papers. Those calls might represent an opportunity for some more or less "Austrian" followers of this blog.

It can be hard to distinguish between 1) an agent in the system making a within-system calculation and 2) an imagined observer of system calculating where the whole system is headed. In "capitalism" you have the former, not the latter. When the lion chases the gazelle, both animals are doing a lot of calculating, but the chase will end well for only one of these calculating beasts. Something similar is true of the calculating entrepreneurs of capitalism. In theoretical socialism, you have 2) and not 1). In real socialism you get 1) partially correcting for the failures of 2), but also partially undermining 2). Maybe Knight had trouble distinguishing 1) form 2)? If you don't make the distinction, then the calculatory rationality of capitalism is a knockdown proof that there is no "calculation problem" of socialism.

Your "Zwei Minuten Volkswirtschaft" is off to a great start. It's an outstanding example of the Austrian tradition of outreach and popular education.

Rational choice is still something of a default in economics, so it makes sense that deviating from it would have a higher marginal value for the deviating scholar in economics than in political science or psychology. I'm not endorsing anything, just making a rational-choice explanatory argument.

This is an important post, Pete. When I posted on this issue at Think Markets, I got some positive replies, but also a lot of push back. http://thinkmarkets.wordpress.com/2013/03/26/income-inequality-matters/ I think liberals (in “our” sense) have to reclaim this issue big time. Think of the bailouts. The big banks are fine while lots of ordinary folks are underwater on their mortgages or lost their houses. That’s not fair and it is most decidedly *not* a product of the “free market.” But the more obvious story to tell for many commenters will be that we need to somehow restrain “the market,” which is to blame for inequality. We should not answer such arguments by talking about the “atavism of social justice” or saying something about how the welfare state supposedly creates dependency. We should answer by pointing to the many ways in which 1) the poor, especially poor blacks, are kept out of the great global division of labor, 2) the elite has acquired special privileges, and 3) we have crony capitalism, not market capitalism. We should be unrelenting on how it’s a rigged system.

PS: When it comes to blog-comment typing, no one's keeping score!

Charles, In raising the issue of winner take all I was alluding to Frank and Cook: http://www.amazon.com/The-Winner-Take-All-Society-Much-More/dp/0140259953

John, you say that I employ a "gambit" in support of the view that "either one adopts an incentive structure solely (or heavily) weighted to the external or one is a naive dreamer." I have pointed to a bit of my published research denying this claim. On this thread I have said (repeatedly now) that "internal factors" matter too. But you don't need to actually read what I have written to know what I think, do you? You seem to know what I "really" think "deep down." Sure looks like the "nihilation" described by Berger and Luckmann. Well, I am only too happy to acknowledge, John, that you are indeed an expert, and act like one!

Here are a couple of more cites to add to the great list given by Nicolas Cachanosky. Jordà, Òscar, Moritz Schularick, and Alan M. Taylor. 2011. “Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons,” IMF Economic Review 59(2): 340-378. Borio, C and W White (2003): “Whither monetary and financial stability? The implications of evolving policy regimes”, in Monetary policy and uncertainty: adapting to a changing economy, proceedings of a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, 28-30 August, pp 131–211. Borio, Claudio and Philip Lowe. 2002. “Asset prices, financial and monetary stability: exploring the nexus,” BIS Working Paper No. 114. White, William. 2013. “The Short and Long Term Effects of Ultra-Easy Monetary Policy,” manuscript. Downloaded 31 July 2013 from http://www.oenb.at/de/img/paper_white_tcm14-255924.pdf We should try to leverage this moment to really bolster the place of ABCT in mainstream macro. It's up to us.

Winton and Garrett, I'm going to try to channel Dan Klein. I don't think we should neglect the qualifier that exchange is sure to be mutually beneficial 1) only in the sense of ex ante anticipations 2) only when both parties enter into the exchange freely, and 3) only if neither party misrepresents her product. We should probably also note that it may well be unjust for one party to exploit the other party's ignorance of prices or other matters as with cabbies who overcharge, perhaps by taking a circuitous route. The tautology about trade benefiting all traders is worth stating only because it helps your interlocutor to see that free trade (whether between persons, groups, or regions) tends generally, overall, by and large, to benefit all transactors ex post. It helps your interlocutor get over certain misapprehensions about trade, such as the common view that one party must win and the other loose. Whether trade really has the tendency to benefit all traders ex post is a broadly empirical question and not tautological.

I told you, I'm not allowed to argue unless you've paid.

Greg, did you read the part where I said I was not talking about Corey Robin? It doesn't matter, does it? You will "respond" to this comment with more outrage and chest thumping, freaking out over Corey Robin. You will interpret anything I might that is not itself outrage over Robin as an apology for Robin or otherwise clueless and offensive. Sigh. To quote the "Mr. Vibrating" character from Monty Python (http://montypython.50webs.com/scripts/Series_3/27.htm), "I'm sorry, but I'm not allowed to argue anymore. If you want me to go on arguing, you'll have to pay for another five minutes."

Greg, You make is sound like Corey Robin strangles puppies in his spare time and sleeps with a photo of Stalin under his pillow. However that may be, I don't think I said anything about Corey Robin. I just pointed out that we don't want to be a Hayek mafia, which was really just Pete's point in the first place, I think. In any event, I will try harder "to stop being dishonest and stone ignorant."

It would seem there is the tension you describe, Pete. And it seems kind of hard to explain, at least if we are going to avoid psychologizing about, say, fighting the old redder-than-red socialists of the old days. And you are right suggest (if I read you) that we do not promote Hayek's good ideas by ginning up bogus apologies for his errors and offenses. I mean, I would hope that our first and only goal is to seek and speak the truth and we see it. But even from the partisan stance of someone who wants to somehow bolster Hayek, you just gotta face all your hero's errors and infirmities to be an effective advocate for him. The Wittgenstein mafia vilified Bartley for outing Wittgenstein, absurdly suggesting that Bartley was trying defame Wittgenstein for being gay! I don't think they did Wittgenstein any favors in that episode. Hayekians should not make the same mistake.

I don't think you count the number of workers cooperating in the production of a restaurant meal, Mark. In the end, I think, everything exchanged is produced, in some sense, by everyone who participates in the division of labor. Adam Smith said, "Observe the accommodation of the most common artificer or day-labourer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation." http://www.econlib.org/library/Smith/smWN1.html#I.1.11

"On coming to Paris for a visit, I said to myself: Here are a million human beings who would all die in a few days if supplies of all sorts did not flow into this great metropolis. It staggers the imagination to try to comprehend the vast multiplicity of objects that must pass through its gates tomorrow, if its inhabitants are to be preserved from the horrors of famine, insurrection, and pillage. And yet all are sleeping peacefully at this moment, without being disturbed for a single instant by the idea of so frightful a prospect. On the other hand, eighty departments have worked today, without co-operative planning or mutual arrangements, to keep Paris supplied. How does each succeeding day manage to bring to this gigantic market just what is necessary—neither too much nor too little?" http://www.econlib.org/library/Bastiat/basSoph4.html#I.18.12

This conversation has gotten way too meta!