Smiling Dave on Austrian Economics.

…the Gentiles shall come unto thee from the ends of the earth, and shall say, Surely our fathers have inherited lies, vanity, and things wherein there is no profit. [Jeremiah 16:19]

Sure is starting to look that way, eh Catholics?

The Pope just came out in support of homosexual marriage, which of course completely contradicts what the Bible says.

DA: So he’s wrong, so what?

SD: Ah, but the Catholics have been told that he is infallible.

DA: I see what you mean. They sure inherited a pack of lies, vanity, and things wherein there is no profit with that one.

SD: Actually, the smart ones already knew that when the Popes started coming out in support of Socialism, something that the Popes have all been doing for decades. Mises proved clearly that Socialism is doomed to fail, as our humble blog has explained at length. Not to mention an inductive proof. Meaning look at this list of failed Communist states.

DA: But Dave, there are still 4 that are at least nominally Communist and have not collapsed yet.

SD: Yes, real economic powerhouses like Cuba and Laos and Vietnam and China.

DA: But China is doing great. And when they were even more Communist they did even better. LOL, just kidding.

SD: And the Socialist states aren’t any better.

DA: But what about Sweden?

SD: Sweden isn’t Socialist any more, and it did terribly when it was.

The only difference between Communists and Socialists is their strategy for how to get into power, but their economies are the same.

And I didn’t even mention all the mass murders the Commies have done over the years.

DA: We get it, the Popes sure weren’t infallible about Economics either. But their failure in that department has been well known to Austrians for many years. How did the Catholics amongst them deal with it?

SD: Simple. They said the Pope is infallible about everything except Economics.

DA: So now they will have to add that the Pope is infallible in everything except Economics and Religion.

SD: Pretty pathetic, no? I mean his job description is to tell all the Catholics about Religion.

DA: So he’s infallible about everything except Economics and actually doing his job. I wonder how the sincere Catholics will handle this one.

SD: Hopefully they will say, “Surely our fathers have inherited lies, vanity, and things wherein there is no profit.”

DA: Or we can watch them twist themselves into pretzels coming up with some kind of defense of their creed.

SD: Have some popcorn.

If you are curious about how Murray Rothbard would vote in this 2020 election, we are here to resurrect Rothbard from the grave so we may hear his opinion. [All quotes from the book Rothbard A to Z, and in italics in what follows].

SD: Murray, what principles should guide voters?

MNR: the overriding consideration for the Libertarian is the condemnation of any State participation in war.

SD: Overriding consideration, hey?

MNR. You betcha. War, then, is mass murder, and this massive invasion of the right to life, of self-ownership, of numbers of people is not only a crime but, for the libertarian, the ultimate crime.…

SD: So you’re saying that if someone is the first Prez to not have a new war in 39 years, and has brokered peace treaties all over the globe, he is the guy we should vote for.

MNR: Well of course. War has been the great killer of human liberty as well as human lives.

SD: Is this how your followers understand you? Have they failed to grasp what you are saying?

MNR: Oh, they understand me all right. Take a look at what David Gordon writes in his book The Essential Rothbard:
If Rothbard is right, we now stand in no doubt as to our main obstacle in defending liberty: the Leviathan State.

SD: Murray, the Leviathan State does all kinds of stuff. It prints money, f’rinstance. Maybe we should not vote for a Prez who is not actively fighting the Fed. Maybe that’s what your disciples think you meant.

MNR: Nope. Here’s how David Gordon continues:
In “War, Peace, and the State,” Rothbard narrows the target, in order to enable defenders of liberty to wage their struggle more effectively. One activity more than any other marks the State as the enemy of liberty, and it is here that supporters of liberty must concentrate their efforts.

SD: All ears now, what is the one activity we must concentrate our efforts against?

MNR: It’s obvious, Dave. Let Dr. Gordon tell you:
The activity, of course, is waging war. Besides the death and destruction directly incident on war, nations engaging in armed conflict pay a heavy price in liberty.

Devill’s Advocate: But they say Trump supports the military-industrial complex and and is in cahoots with the generals.

SD: Devil you pest, always butting in. You know very well he has been nominated for 3 Nobel Peace Prizes. One in 2018, and two more this year, 2020. [Two mentioned in the first link, one in the second]. [Update: Now it’s three this year alone. Look it up]

DA: But maybe he loves war, despite all those nominations and those peace treaties he has set up, and despite not starting new wars. After all, the military loves him.

SD: “I’m not saying the military’s in love with me,” Trump told reporters. “The soldiers are, the top people in the Pentagon probably aren’t because they want to do nothing but fight wars so that all of those wonderful companies that make the bombs and make the planes and make everything else stay happy.”

MNR: He definitely has my vote.

DA: But you’re dead.

MNR: The Democrats don’t mind.

 

Those who delve deep into AE [Austrian Economics] sooner or later find that its Tree of Knowledge needs to be pruned, because some nonsense has been grafted onto it. Rothbard, for example devoted some time to sawing off the Free Banking absurdity. This article will hack away at the Performative Contradiction Argument [applied to the Action Axiom], refuting it five different ways.

Devil’s Advocate: What’s the Performative Contradiction Argument, Dave?

Smiling Dave: It’s a clever seeming one line proof of the Action Axiom, which asserts that humans “act”, meaning do stuff with a goal in mind. It goes like this. Say Jones writes out a proof that humans do not act. Well now, he wrote that proof with a goal in mind,  didn’t he?

DA: Sure did, his goal was to disprove the Action Axiom.

SD: Which means he Acted. Any attempt to prove humans do not act can only be laid out by acting. His deeds contradict his very proof. That’s what we call a performative contradiction. The very attempt to disprove the Action Axiom is itself an Action. You want to show humans do not Act by Acting. Performative Contradiction.

DA: Why is it called a performative contradiction and not just a contradiction.

SD: Because Philosophy nowadays has accepted Mathematics, Euclid if you will. In Math a contradiction means the argument presented is internally inconsistent. For example, say Kurt Godel wants to prove 2+2 =5. He gives the following argument

1. We know 1+1= 2
2. But 1+1=3 also.
3.  Add those two equations and get 2+2=5.

DA: Clever, but 1+1 cannot be both 2 and 3. Your first assertion and your second contradict each other.

SD: Exactly. That’s what is called a contradiction nowadays. A performative contradiction is a completely different animal. It grants that there is no internal contradiction in the proof, but introduces the human factor, the guy sitting down at his desk writing the proof. His actions contradict his proof. His very attempt to prove humans do not act actually proves that humans do act.

DA: Who thought up that method of contradiction?

SD: The same guy who made the following argument:

1. A left glove and right glove are not the same, but we cannot pin down why they are different.
2.  Therefor, space and time and causality are not real things. They are just illusions in our head.

DA: Let’s move on. Why do you think the performative contradiction proof that humans act is flawed?

SD: There are five huge flaws, each one by itself enough to destroy the performative contradiction argument. First, it claims to prove a generality while actually only proving a particular instance. Second, it assumes you need a human to prove things. Third, it assumes  that True and Provable are the same thing, which they aren’t. Fourth, it forgot about the 99% and the 1%. Fifth,it pretends a mere hypothetical case actually happened.

DA: Would you elaborate, please?

First Flaw. Thinking one case proves all cases.

SD: Sure. The first flaw is that it only proves one thing while claiming to prove an infinity of things.

To see this clearly, imagine an insane asylum where all the people in it have brain damage such that they are incapable of logical thinking. These poor people can only do things at random, to no purpose. But there is one guy in that place who is a little better off. He had one interval of sanity in all his life. And wouldn’t you know it, in that one interval he wrote out a perfect proof that humans do not act.

DA: Ha! He himself acted when he wrote that proof. Performative contradiction! He has shown that he acts. QED!

SD: Has he shown that he acts always, or even most of the time, or even twice?

DA: Of course not. The poor fellow is brain damaged. He only acted once.

SD: Has he shown that the other inmates act?

DA: Of course not. How can he? They are all nuts.

SD: But doesn’t the fact that he acted one single time prove that he always acts, and that all the other inmates always act?

DA: Dave, you are losing it. That’s like making the following argument.

1. One day, Babe Ruth hit a home run that flew 600 feet.
2. Therefor, Babe Ruth spends every waking moment hitting 600 foot home runs.
3. Not only that, everyone spends every waking moment hitting 600 foot home runs.

SD: Exactly. This performative contradiction nonsense, even if we grant for the moment that it is a valid proof, proves only one home run. But it claims to prove an infinity of home runs, from the beginning of time to all eternity.

DA: But Dave, isn’t that how inductive proofs work? You see one instance, and you generalize.

SD: Inductive reasoning needs more than one instance to get started.

DA: OK, I think we get the first flaw. What’s the second flaw?

Second Flaw. Assuming you need a human to prove things.

SD: To understand this flaw, consider for a moment the equation 2+2=4. Let us imagine the situation before man walked the Earth. Was 2+2 equal to 5 back then? Does the presence or absence of humans change the nature of Mathematics?

DA: Dave, there are some philosophers who claim Math is all an invention in ones head. That until some living human actually thought of it, 2+2 did not equal 4, or any other number.

SD: More power to them, but there are plenty of others who think that 2+2=4 is a fact of nature. There are trees, and there are oceans, and there are mathematical truths, all equally “real” and independent of human existence.

DA: Yes, that’s the common sense approach, I grant you. It definitely has not been proven wrong by anyone, the guy who couldn’t tell his left glove from his right notwithstanding. But where are you going with this?

SD: If we claim that 2+2=4 even when no men are alive, that Arithmatic “exists” even before someone writes it down on paper, so too we can claim that valid proofs “exist” even though no one has written them down.

DA: Ah, but you cannot prove that, Dave.

SD: But I don’t have to. Let’s remember what we are talking about. Smith publishes a proof that human do not act. Jones says Smith has made a performative contradiction by writing the proof down, and that this somehow invalidates Smith’s proof.  But surely that’s a non sequitur, unless Jones is assuming that a proof has to be written down, and that the proof has no existence until it is written.

In other words, Jones is assuming, with no proof, that 2+2 is not equal to 4 until someone writes it down. The burden of proof is on Smith to prove that absurd notion.

DA: Dave, you’ve got my head spinning. Can you dumb it down a little?

SD: OK, until now I have claimed that a proof is a proof even before anyone writes it down. If that is over your head, Devil, I’ll change the argument just a little. I claim that a proof is a proof even if a non human writes it down. Certainly once it’s on paper, it’s a proof, we can all agree, no matter who wrote it.

DA: I see where you are going with this. The Performative Contradiction Argument is that the human who tries to prove that Humans do not Act is acting when he writes down the proof. But if a non-human writes the proof, there is no contradiction.  A non-human has acted when writing down the proof, which does not contradict the claim that Humans do not act.

SD: Precisely.

DA: What I don’t get is, what non human could write down that proof? A cow? A horse?

SD: There are plenty of possibilities. First of all, there is God. He could write the proof.

DA: But what if someone denies the existence of God?

SD: So the Performative Contradiction Argument, to be valid, will have to prove God does not exist. Good luck with that.

DA: You said there are many possibilities of non humans who could write down the proof. Who else?

SD: Ever heard of SETI?

DA: The Search for Extra-Terrestrial Intelligence. Sure. There are serious people, including Nobel Prize winning scientists, who think it very likely that there is intelligent life on other planets.

SD: Intelligent enough to write a proof?

DA: I see what you mean. So the Performative Contradiction Argument has to prove they don’t exist either. Who else could write the proof?

SD: Dolphins. Scientist believe that dolphins are as smart as humans. For now, they have not yet deciphered their language, even though they can hear it underwater. But one day they may, and lo and behold the first thing they tell us may well be a proof that Humans do not Act.

DA: So the Performative Contradiction Argument has to prove dolphins are stupid. Who else?

SD: The cows and horses you mocked earlier.

DA: What?

SD: Let me quote Wikipedia:

The infinite monkey theorem states that a monkey hitting keys at random on a typewriter keyboard for an infinite amount of time will almost surely type any given text, such as the complete works of William Shakespeare. In fact, the monkey would almost surely type every possible finite text an infinite number of times. However, the probability that monkeys filling the observable universe would type a complete work such as Shakespeare’s Hamlet is so tiny that the chance of it occurring during a period of time hundreds of thousands of orders of magnitude longer than the age of the universe is extremely low (but technically not zero).

DA: So a cow or horse or a monkey doodling with his paw on the ground may wind up writing a proof that Humans don’t Act. But the probability of that is extremely low, Dave.

SD: But not zero. The Performative Contradiction Argument doesn’t say a proof that Humans do not act is unlikely to be found. He claims it cannot possibly be be found. Well it can.

DA: So the Performative Contradiction Argument forgot about God, about Martians, about dolphins, and about monkeys typing away.

SD: And also about Nobody. Our original argument is that a proof is a proof even if nobody writes it down. What I’m saying may sound amusing, what with Martians and monkeys, but if you examine it closely you see it refutes the Performative Contradiction Argument decisively. And I didn’t even get to parrots, or the inmates of that insane asylum we mentioned earlier.

DA: No need, Dave, we get the idea.

SD: Summing up, the Performative Contradiction Argument is as follows:

1. Every proof has to be written down by a Human.
2. But the Human who wrote it down had a goal in mind, i.e he Acted.
3. Therefor all Humans Act, at least most of the time.

The first flaw is that 3. is a non sequitur. It does not follow from 1. and 2., as we have shown.

The second flaw is that 1. is false, as we have shown. And so is 2., for that matter. [Maybe the human who wrote the proof was insane and lobotomized and could only type things with no purpose in mind.]

DA: You’ve shot down the Performative Contradiction Argument by exposing two huge flaws, each one by itself enough to leave it dead in the water. What’s the third flaw?

Third Flaw: Confusing True and Provable.

SD: To understand the third flaw, let’s look at the Axiom of Choice. Godel proved that it cannot be proven false. So for a couple of years, mathematicians considered it true.

DA: Just like the Action Axiom. If we accept, for the sake of argument, that the Action Axiom cannot be proven false, then we have proven, or at least we can assume, that it is true.

SD: Yes, that was the situation for a while. But then Paul Cohen proved that the Axiom of Choice cannot be proven true either.

DA: You mean it cannot be proven true, and also cannot be proven false?

SD: Sounds crazy, no? But that’s the situation. Just because something cannot be proven false, that does not mean it is true. So this whole use of the Performative Contradiction Argument has been obsolete for a good fifty years. I’ve seen it used by people to prove all kinds of things. How wrong they are.

DA: And that’s the third flaw, thinking Unprovable means False.

SD: Yep.

DA: But what about the Law of the Excluded Middle? Is that wrong, too?

SD: No, it’s still correct that any assertion is either true, or it’s negation is true. But again, let us not confuse true with provable. An assertion may be true, but neither it nor it’s negation may be provable. In Math alone, there are an infinity of such assertions, as Godel proved.

DA: So bottom line, even if we ignore the two previous flaws [for the sake of argument] in the Performative Contradiction Argument, there is still a problem with it. It proves something, but not what it claims to prove.

SD: Yes. It proves that the negation of the Action Axiom is unprovable, but it claims to prove more, that the Action Axiom is true. Big Mistake.

DA: On to the fourth mistake

Fourth Mistake: It forgot about the 99% and the 1%..

SD: This one is very simple. Say a person proves that humans do not act 99% of the time. That’s enough to destroy the underpinnings of AE. But there’s no performative contradiction. He proved humans do not act 99% of the time. His action of writing out the proof belongs to that 1%.

DA: Like if a rich man claims 99% of the world is poor, yet he is rich. No contradiction there.

SD: Yep.

DA: But Dave, isn’t this the same as the first flaw, which is trying to prove the universal from a single particular case?

SD: The difference is this. The first flaw talks about Jones trying to prove all humans do not act, and claiming it proves all humans do act. This fourth flaw points out that with a slight modification of what Jones is trying to prove, that AE can be destroyed.

DA: So the first flaw is talking about Jones trying to prove all humans never act, and this new flaw talks about Jones trying to prove most humans do not act most of the time.

What’s the fifth blunder?

Fifth flaw: Pretending the hypothetical actually happened.

SD: To show this flaw in all its absurdity, I will now prove that Julius Caesar is alive today.

1. If Julius Caesar were to claim today that he is dead, that would prove he is alive today.
2. Thus any attempt by Caesar to prove he is dead today is a performative contradiction
3. Therefor Julius Caesar is alive today.

DA: Now wait just a minute, Dave. Caesar never actually got up today and said he is alive. You are taking a hypothetical situation and pretending it actually happened.

SD: Which is exactly the same mistake the performative contradiction argument makes. It talks about a hypothetical, someone writing out a proof that humans do not act, pretends it actually happened, and concludes that a performative contradiction actually happened.

DA: But maybe it doesn’t do that, Dave. Maybe all it is saying is that the hypothetical case would lead, hypothetically, to a hypothetical performative contradiction, not that a perf. cont. actually happened.

SD: And that is proof enough that humans act?

DA: Ermm, yes.

SD: So I have proof enough that Julius Caesar is alive today, too.

DA: I see what you did there. Touche.

Summing up.

SD: Summing up, we have shown that the performative contradiction proof is a huge embarrassment to AE.

DA: Almost as embarrassing as thinking that the existence of left gloves proves there is no causality.

SD: And it is totally unnecessary, as we will show in what follows.

What did Mises think about this whole thing?

DA: You wrote earlier that the Performative Contradiction Argument is a graft onto the Tree of Austrian Knowledge. But isn’t it part of the tree itself? Didn’t Mises believe in it? Doesn’t the Action Axiom stand or fall with the Performative Contradiction Argument?

SD: Not at all. In David Gordon’s An Austro-Libertarian View, Vol. I, he quotes a discussion between Israel Kirzner and Mises:
This writer [Kirzner] once asked Mises how a person can know that human beings other than himself are indeed purposeful… Mises answered my query by saying, in effect, that we become aware of the existence of other human agents through observation.
DA: Through observation. That’s how we know that other people act. [I guess we know that we ourselves act by introspection].

SD: Notice he didn’t say we know other people act because we can prove it using the old Performative Contradiction Argument.
DA: He was too smart for that.
SD: Yep.

(more…)

WordPress is giving me 40 days to tell them my cell phone number or else they won’t let me write new articles. No way, Jose, am I giving them that info.

But it’s OK. Over 300 articles is a nice body of work. And I have run out of steam.

So time to sum up.

Most popular article: By far, the one explaining how to fix a java problem in Windows.

Most Important Contribution: Solving Zeno’s Paradox. So much confusion until I cleared it all up. Even Bertrand Russell was confused.

Most controversial: The bitcoin series, where I prove that Bitcoin is doomed to fail. Devil’s Advocate is telling me bitcoin has risen to an all time high, but that’s a short term thing. It will go to zero within 20 years, as all fake monies have.  The key theoretical insight is that it will never, ever, be used as money, which, of course, is proving true. Nobody actually buys anything with bitcoins. They merely hoard them, hoping its price will go up. [Note: I had a first draft of this paragraph up earlier that Pete Surda pointed out was unclear. See comments.]

Which means, of course, that it is inherently a scam and a mania. Imagine a thing whose only use is sitting on it, hoping to sell someday to a bigger fool who can only sit on it, hoping to sell some day to a bigger fool, and so on forever. It cannot last.

As for all the wonderful ideas people have for using bitcoins to transport or store information or whatever nonsense they are telling you about, that is talking about the technology, not ownership of the bitcoin. It’s like someone telling you how wonderful television is, then trying to sell you one piece of airwave for a thousand dollars. What can you do with ownership of an airwave?

Thing I was in over my head: Mises’s calculation problem. I still cannot say I have 100% clarity on it. One person asked me why, in theory, a computer cannot do what an entrepreneur does. The entrepreneur must have some kind of thinking process going on. Why, in theory, can’t a computer be taught to do the same thing? I do not know.

What I should be doing now: Politically, supporting President Trump in every way possible. He is our guy, our hero, and by “our” I mean anyone who is not a parasite on innocent people, like Hillary and Obama and their ilk.

I’d love the chance to sit down with him and teach him some Austrian Economics, because he is making and going to make some big mistakes, all because of ignorance of AE. Of course, it doesn’t have to be me. I’m slowly forgetting the details of AE, as my interests move on. Ron [not Rand]  Paul would be ideal.

So good bye folks, it was fun. The deadline is April 17, 2017, at which point wordpress will turn off the lights.

Thank you for reading and commenting.

Dave

Devil’s Advocate: Seen the last of him, hahahahaha.

That’s what people are saying at reddit.com/r/the_Donald .

Now don’t get me wrong, I’m pleased with Trump, both by the fact that he kept Hillary out and by the good things he has been doing.

But anyone can make a mistake, and Donald supporters saying a tariff on Mexican imports is the same thing as Mexico paying for the wall is a huge factual error.

An American guy goes into a store and wants to buy some Mexican jumping beans.

“Why are they $1.20 today when yesterday they were only a dollar?”

“Because Mexico has to pay for the wall.”

“Wait a minute. I’m paying that extra 20 cents, not Mexico. So it’s me paying for the wall.”

Thus, a tariff on Mexican imports is obviously not “Mexico paying for the wall”.

But what about the other way around? What if we charge an extra twenty percent on everything we sell Mexico? Then for sure it’s the Mexicans paying for it, right?

No. Because the US govt is not able to reach into a Mexican’s pocket and collect money from him. So it’s the American exporter who will pay that 20%.

Devil’s Advocate: But Dave, the exporter will collect that straight from the Mexican pocket by charging the Mexican an extra 20%. So it is Mexico paying for the wall.

Smiling Dave: Well, yes, if the exporter can actually sell the same amount of stuff as before we taxed him. But there is a huge Wall standing in his way, called the

Laws of Supply and Demand. Everyone has felt this law in his everyday life. When video games cost $20 you will buy, say, five of them. When they cost $100, you will buy less than five.

DA: But Dave, even in your example, the money is the same. In each case, you buy $100 worth of stuff.

SD: Ahh, but the devil is in the details. If the exporter was selling 5 American video games at $20 each, his net income is $100, because he keeps all the profits. But if he sells one at $100, of which he keeps only $20, because there is an export tax of $80, his net income is $20. So that tax, even though the Mexicans are paying it, is making the American producer lose 80% of his income. He will go bankrupt. That’s not our goal. We are shooting ourselves in the foot.

DA: Dave, we aren’t going to charge an 80% tax, only a 20% tax.

SD: Do the math. The principle is the same. A higher price means less sales. But a higher price does not mean higher profits per item for the exporter, because any extra money goes to the US govt, not to him. Meaning you are decreasing his income.

DA: Meaning he is paying for the wall, and may well go bankrupt.

SD: You got it.

DA: So how will we make Mexicans pay for the wall?

SD: I don’t know. But one thing is absolutely certain, by simple arithmetic. Any tariff or tax on anything, whether we buy it from Mexico or sell it to Mexico, means we are paying for it, not them.

Barter Economies.

The confusion about the regression theorem multiplies. Once again, that hoary chestnut, that the reg. thm. only applies to a barter economy, is getting popular.

Time for Smiling Dave to clear things up. We begin by quoting Mises, then, since it is written in very stilted English, to translate it.

In Human Action, Mises begins his study of the regression theorem by noting that “…the extent of that part of the demand for a medium of exchange which is displayed on account of its service as a medium of exchange depends on its value in exchange.”

Let’s translate this into simple language to make sure we know what it’s saying.

“…the extent of that part of the demand for a medium of exchange which is displayed on account of its service as a medium of exchange…”
Translation: Why does Smith want and accept a dollar, or a bitcoin, or any other unit of any kind of money, as worth a pound of apples?”

“…depends on its value in exchange.”
Translation: Because plenty of other people also want the dollar or the bitcoin in their pockets, and also accept it as worth a pound of apples.

He writes that this simple statement led people to reject the whole Austrian analysis of money.

Devil’s Advocate: And how right they were. Supposedly Smith only accepts it as money because Jones and Butler and Yeats, and thousands of other people do. But the same is true of Jones. He only accepts it because a thousand other people do. Same with every single one of those thousands. Each one accepts it only because everyone else does.

And of course, that can’t be. You have to start somewhere. When the world was created, nobody accepted anything as money, obviously. So let’s say that on January first, nobody accepts a silver coin as money. Why does Smith wake up on January second and agree to accept a silver coin as money from now on, when nobody else does? For him to accept it, you need thousand of other people to accept it. Otherwise he won’t be able to buy the many things he needs with silver coins. [Alternately, why do thousands of people wake up on January second and all decide to accept the silver coin as money?]

SD: Yes, that’s an excellent question. And that question has to be answered whether Smith is living in a barter economy or a money economy [meaning where people are using gold, say, and he suddenly accepts silver as money, too]. Why should he accept silver coins, or bitcoins, or any new candidate for money, that nobody else does?

Bottom line, the regression theorem’s question has to be answered in every economy, barter or money. How wrong it is to say that the reg. thm. only applies to a barter economy.

Praxeology and Psychology.

Some have argued that that there is no need at all to answer the above question. That we are barking up the wrong tree. Here is the gist of their argument:

We have left the field of praxeology [=economics] and have entered into psychology when we talk about why Smith will accept bitcoins, or anything else, as money. That is a question for psychology, not economics. People are funny. They do things for subjective [= often stupid] reasons, often egged on by wild, irrational, psychological impulses. It is not our task to delve into their minds, but to study their actions.

Thus, these people claim that asking why people accept or reject a bitcoin as money is not our job. Leave it to the shrinks. We are economists, and have a different job to do, namely, serious economics. Just for fun, let’s call the assumption that we need not understand why people choose the means they do the Shrink Hypothesis.

DA: You make it sound like they are wrong.

SD: Indeed they are. That whole argument confuses means and ends. The ends a man chooses are subjective, yes. Why he chooses them is not part of economics, that’s correct. But the study of the means he chooses to achieve his goals is the very heart of economics, and is not something to be left to the shrinks. As Mises writes in Human Action, “It [=praxeology] is a science of the means to be applied for the attainment of ends chosen…”

DA: So the shrinks study why people choose certain goals, and economists study why, given a goal, they choose certain means to achieve that goal.

SD: Yep.

DA: But Dave, maybe the Shrink Hypothesis is right. Maybe economics studies the means people use, but does not study why they use them.

SD: That cannot be so. To prove this, lets look at the laws of supply and demand. Every economist agrees that the higher the price of  a product, the more people will be willing to supply the product, and the less they will be willing to buy the product.

Now for a thought experiment. Let’s assume that one day all mankind decides they want to buy high and sell low, always. The higher the price of anything, the more people start buying it. And this happens for everything, universally contradicting the laws of supply and demand. And that happens from today until the end of time, for all goods and services. When asked, they will all say that their goals remain the same as they ever were.  Since this is a thought experiment, let’s add that we know they are telling the truth.

DA: But that implies they have all decided that wasting money is a means to get rich. They have sized upon a new means.

SD: Would such a reality contradict all we know about the laws of supply and demand?

DA: Yes it would. It is exactly the opposite of what all the textbooks say.

SD: Would it behoove us as economists to try and figure out why they seized on this new means of doing things?

DA: It absolutely would. If we want to get to the bottom of things, and understand why reality contradicts our laws of economics, we certainly do.

SD: Not if you agree with the Shrink Hypothesis. Then you have to say that who cares why people have suddenly chosen a mad means of doing things. Economics has been proven wrong by the new reality, and that’s that.

DA: What would you say, Dave?

SD: I’d say that what is really going on is that the thought experiment has a missing piece. If the experiment wants to say people have chosen a new means, then it has to say why they have chosen that means. Because economics always has to know why a particular means was chosen. That’s what economics is, knowing all you can about the means.

DA: But the proposer of the thought experiment would be hard put to answer why everyone suddenly decided losing money is the best way to make money.

SD: Exactly. Thus, we have refuted the thought experiment, but the Shrink Hypothesis has to accept it. And it has no way of claiming our thought experiment is implausible. Remember, the Shrink Hypothesis considers all possible choices of means as equally valid, and thus equally likely, at least in theory. They see nothing odd about all mankind getting up one day and accepting bitcoin, or anything else, as money. Remember, people are funny.

DA: But wait a minute. Your argument assumes that bitcoin is a means. Is money a means or an end?

SD: Marx wrote that to a small group of people money is an end in itself. But surely even he was only talking about money that can be used to buy things. Even Marx would never claim that some capitalist runs his business solely for the purpose of accumulating Monopoly money. Come to think of it, he writes that they pursue “exchange value”, proving my point.

So that to almost everyone alive, money is a means of achieving their ends. You work to make money so you can buy stuff. You don’t work to make money because it looks pretty. You might buy a painting because it is pretty, because having a pretty painting is a goal you might have. But nobody has a goal of having pretty money. Money to people is a means. That’s why it’s called a “medium” of exchange. “Medium” means “means”. Money is a means, not an end. This cannot be emphasized enough.

Thus, Mises’s classic, The Theory of Money and Credit, is not a psychology book. It doesn’t say people are funny. It discusses which money people will choose as the preferred means of buying things they want, and which money will be outright rejected as a means of getting what they want.

DA: So an economist should indeed study if and why people will accept or reject bitcoins.

SD: Absolutement.

One Guy Does Not Solve the Problem.

DA: Moving on, some people are saying, yet again, that to be a medium of exchange all you need is one person using the bitcoin once to buy a pizza, and then the bitcoin is forever enshrined as a medium of exchange, from that moment to all eternity. Thus, all your arguments on this blog that bitcoin isn’t a medium of exchange are refuted by simple reality. A single slice of pizza, digested long ago, shows how wrong it is to claim bitcoin is not a medium of exchange.

SD: The fact that one guy bought a slice of pizza for ten thousand bitcoins five years ago doesn’t answer the question raised by the regression theorem. Say Mr Geek accepted those 10,000 bitcoins and gave a slice of pizza for them. Smith will still not say, nor will anyone else, “OK, you want to pay me  in bitcoins instead of dollars? Sure.”

DA: Why not?

SD: Because once Smith accepts those bitcoins, he has to pay his rent and his phone bill and electric bill somehow. And he has to go shopping for food and clothing. And pay all kinds of people for all kinds of things, none of whom will take his bitcoins in payment. And he knows this. That slice of pizza did not change reality. Everyone he knows, except maybe for Mr Geek, wants to be paid in dollars, not bitcoin. And everyone they know wants the same thing.

Nor does Microsoft.

DA: But Dave, look at all the big box companies like Microsoft that accept payment in bitcoin nowadays. They consider it money.

SD: Oh no, they don’t. They won’t touch bitcoin with a ten foot pole. It never enters their wallets for a second. What happens is, there is a middle man, a bitcoin company, that accepts the bitcoins from the buyer, charges Microsoft a fee, and gives Microsoft cash dollars.

DA: And that middle man? What does he do with the money?

SD: He holds onto it, gambling that it will go up in price. Or else he sells it to other gamblers.

What is the Answer to Those Questions? How does a new Money Take Flight?

It’s in Human Action, or read Bitcoin Takes a Beating  for a popular exposition.

 

Oddly enough, Mainstream Economics hasn’t learned much in the last hundred years, and still makes most of these ancient blunders.

Source for this article:
Mises and Austrian Economics Murray N Rothbard.mp3

and Mises and Austrian Economics Murray N Rothbard_2.pdf [full of typos, sadly]

In other words, I’m summarizing Rothbard. I’m not sure when he made the presentation. He mentions computers and calculators being cheap, and the Communist countries still being Communist, so that may give some clue. The format will be as follows. I’ll name the fallacy, then quote Rothbard about it in italic font, then mention what little I know about it. Without further ado, the big 16.

1. Too much aggregate, too little individual.
…all the other schools of economics…deal with aggregates, groups, classes, wholes of one
sort or another, without focusing on the individual first and building up
from there.
Smiling Dave: Yep, this one is still with us.
Devil’s Advocate: But Dave, you don’t explain why it’s wrong.
SD: That’s beyond the scope of the article, which is very long already. Just going to list the blunders, not refute them.

2. Consumer prices are determined by cost of production [when the truth is vice versa].
…value, economic value, price, was determined by the cost of production…
SD: I’m told this is no longer believed by the mainstream.

3. Labor Theory of Value.
…the cost of production is embodied in some fashion in the product, and specifically by the quantity of labor hours embodied in it.
SD: In another mp3 in the series, his listeners tell Rothbard that no professional economists, not even Marxist economists, believe in that anymore. But among sociologists, fiction writers, and the like, people who are Marxists but have not actually studied any economics, the Labor Theory of Value is alive and kicking.

4. False Dichotomy of Exchange Value and Use Value.
…value in use and value in exchange, … and we have to deal with exchange value, and forget about use value. You see right away this sets up the conditions for a whole bunch of left wing thought in the late 19th, early 20th century. It’s still going, I suppose,…production for use and production for profit. It immediately sets that up somehow as a big distinction.
SD: I’m told that the mainstream no longer thinks like that.

5. Preoccupation With Numbers.
…science meant measurement in those days for these people. And so therefore, how do you measure value, how do you measure changes? He’s looking for some hard quantity…
SD: Oh, yes, worse than ever.

6. Distribution Theory.
...they had a separate thing called distribution, theory…trying to figure out—this is Ricardo particularly—who decides how much of the national output goes to wages, how much goes to profits, how much goes to landlords?
SD: I’m told this one is dead.

7. Class Conflict.
…a class struggle between these three mighty groups, [land, labor, and capital]. In other words, the good is produced somewhere, first they produce it, then they fight for who gets the different shares of income.
SD: Most people still believe this. I’m told that mainstream econ does not.

8. Iron Law of Wages.
…wages are determined by the iron law of wages, the Malthusian iron
law, down at the subsistence level…Everybody gets the lowest possible wages…
SD: Mainstream econ doesn’t believe this anymore, I’m told.

9. Landlords are Parasites Who Deserve to Be Paid Zero Rent.
…evil, unproductive landlords, getting an increasing share
of the national product…
SD: I think this is still believed by laymen, and I think by Keynes as well [he wanted euthanasia of someone or other]. Mainstream, I’m told, is silent about this, so it seems they no longer agree with it.

10. Focus on Equilibrium.
…focused totally on nonexistent, unreal,long-run
equilibrium. This is done right now by modern microeconomics, and
macroeconomics, for that matter…In long-run equilibrium you
don’t have to forecast anything; nothing ever changes.
SD: I’m told that this is still around.

11. Forgot about the Entrepreneur.
…they don’t talk about entrepreneurs because entrepreneurs deal with change and uncertainty. You make a profit if you can forecast better than the next guy. You make losses if you can’t forecast. In long-run equilibrium you don’t have to forecast anything; nothing ever changes…So the entrepreneur then becomes a pain in the neck. It’s messing up your neat mathematical system.
SD: Still going strong.

12. Perfect Knowledge.
Since nothing ever changes, everybody has perfect knowledge, as they
call it, perfect knowledge, everybody’s in perfect competition, there’s no
uncertainty, no risk, no profits, there are no losses.
SD: Rational Expectations Theory and Efficient Market Hypothesis seem to indicate this is still around.

13. Micro and Macro Never Meet.
…separate, divide totally the macro from the micro sphere.
We’re all familiar with that, those of us who take current economics…
Micro, you learn about supply and demand or whatever,
and then suddenly you leap into macro and nobody talks about supply and demand, they all talk about growth curves and velocity and all that, totally different.

…It’s like two hermetically sealed spheres.
There’s the microsphere where things are going on, it’s fairly
understandable, supply and demand, prices and all that. Then there’s
the macro sphere, totally cut off from the micro, where you have
money and prices bouncing up and down, with no relationship between the two.
SD: Alive and kicking.

14. Don’t Understand Interest.
…the poor anti-usury people could never
figure out… what their justification for interest
is, interest on a pure loan. They could understand about risk, they
understood about uncertainty and all that; they just didn’t understand
about, why should people be able to charge three percent or eight
percent or whatever on a pure loan.
SD: Keynes believed this. The mainstream still doesn’t understand interest, though they may think it’s OK to charge it.

15. Capital is a Homogeneous Lump.
We have capital, not as a homogeneous lump, which modern economics still tends to say, just add more capital, as if it’s somehow a blob out there.

Capital is a latticework, it’s a network, a structure which all has to fit in
together. And by the way, only the free market can fit it in. Only
entrepreneurs, the profit and loss test, profit and loss, incentive, and
free price system can do the fitting.
SD: Still around, I’m told. How else can you put Capital into an equation?

16. It Takes Time to Make Stuff, and Some Things Need More Time than Others..
…modern economics still has not learned, capital takes time, production
takes time. Capital is a time structure.
Some goods are very close to consumers, like producing Wonder Bread,
where the retailer is very close to the consumer.
On the other hand, machinery, the iron ore that goes into making the
machinery that produces Wonder Bread is way up the structure, takes
a lot of time to get to the earlier phase of production or a higher order
of production. So we have then production taking time.
SD: I’m told they don’t get this yet.

So there you have it. Mainstrean Economics gets 9 out of 16 wrong. Their grade on a test of basic economic knowledge, provable from first principles and obvious to common sense as well, that has been around for well over a hundred years, is 43%.

[Thanks to the members of the libertyhq forum for their info on what’s being taught today in the schools. All errors are mine].