Tuesday, May 08, 2018

A Popperian View

English: Karl Popper in 1990.
English: Karl Popper in 1990. (Photo credit: Wikipedia)
I intend to write a few posts that use ideas drawn from Karl Popper's work which will have the title "A Popperian View of [fill in the blank]." While these posts will be applications of Popper's ideas, there is no argument that he would endorse the conclusions or agree that the ideas could be applied as I do. After all, I think my view of society is Popperian, but it is quite different from that of Popper's.

I also recognize that others who consider themselves to be Popperians may have different takes and might severely criticize and reject my conclusions, possibly even going so far as to call then non- or even anti-Popperian. I choose to assume in advance that any such differences are simply attempts to arrive at a closer approximation of the truth.

These caveats are not meant to imply that I am tentative about the ideas and arguments I will put forward. They are meant to clear away, in the minds of readers, the idea that I am arguing from authority or that they would not benefit from reading Popper themselves and applying his ideas to these issues and others.

Sunday, April 22, 2018

Demarcation: Metaphysical vs. Empirical

English: The front book cover art for the book...
English: The front book cover art for the book The Ethics of Liberty by the author Murray Rothbard. The book cover art copyright is believed to belong to the publisher or the cover artist. (Photo credit: Wikipedia)
I recently had an interaction on Facebook in which someone who I thought was enthusiastic about my approach suggested that demarcating between science and non-science was "unhelpful for promoting understanding" – that it "smacks of some kind of positivist impulse."* Of course, I disagree.

In economics the demarcation is between the metaphysics of economic theory – where the "action axiom," marginal utility, the law of supply, and the law of demand lie – and the trial-and-error empirical science involved in market processes – the creation of business plans that result in profit (non-falsification) and loss (falsification).

If we do not understand what is metaphysical and, hence untestable (although subject to criticism), and empirical, hence subject to test, we risk the creation of disputes where none would otherwise exist. Examples are the rejection by some adherents of the Austrian school of fractional reserve banking and intellectual property. The first of these rejections is largely because of the "absolute morality" detailed by Murray Rothbard in The Ethics of Liberty, and the latter because of the belief by some (generally followers of Rothbard led by Stephan Kinsella) that economic goods must be "rivalrous" to
qualify as property. These rejections are both attempts to characterize the problems as metaphysical rather than empirical.

Both fractional reserve banking and intellectual property represent business plans that could not be prevented in a free society and would be empirically tested in the event that their realization becomes possible. Confusing the empirical with the metaphysical has led to a great deal of acrimony.

As a final note, the determination of what is and what is not property is empirical in every case. Definitions may be created in an attempt to distill what is apparent in market processes, but any such definition will be subject to revision as its costs and benefits are weighed in the market.

*Full quote:
Personally, I find the "not science unless empirical" distinction to be unhelpful for promoting understanding. I believe too much is being taken for granted in our use of the word "science" in common discourse, and the urge to make this science/non-science distinction smacks of some kind of positivist impulse, leading us to make haughty pronouncements.

Wednesday, October 11, 2017

Modern Money Theory is really Magical Money Theory

In my quest to understand things economic, I have run into Modern Money Theory (MMT) a number of times, and have adopted the habit of calling it "Magic Money Theory" because it seems to bestow magic properties upon money issued by governments. Feeling that I, perhaps, just didn't understand what MMT theorists were talking about, I searched for their responses to Weimar inflation--something that would seem hard for MMTers to explain. As a result, I stumbled upon L. Randal Wray's series of articles at EconoMonitor, entitled Zimbabwe! Weimar Republic! How Modern Money Theory Replies to Hyperinflation Hyperventilators (Part 1)Not Worth a Continental! How Modern Money Theory Replies to Hyperinflation Hyperventilators (Part 2), and http://www.economonitor.com/lrwray/2011/09/07/helicopter-ben-how-modern-money-theory-responds-to-hyperinflation-hyperventilators-part-3-2/. These articles did nothing to change my views of MMT, and actually makes me wonder if "Maniacal Money Theory" might be more appropriate.

Wray starts his defense of MMT by stipulating 'that government spends by “keystrokes”, this is a description'--no argument there. But then he goes on to state, 'If critics were correct that government spending by “printing money” necessarily leads to hyperinflation, then most developed nations would have hyperinflation all the time.' As far as I know, no critic says printing money "necessarily leads to hyperinflation," but they generally would say that it risks hyperinflation. The claim is hyperbolic as governments can and do reverse inflationary policies. The concerted actions of Reagan and Volker in the early 1980s illustrate the point.

The claim is made that "gold and silver coins were the Sovereign’s IOUs that happened to be recorded on metal (rather than on paper or electronic balance sheets)," but sovereign IOUs on paper, such as Tsarist bonds, are now generally worthless, while a Tsarist rouble will, even if melted down, its sovereign connection (and collectibility) broken, purchase a nice dinner for two. A gold coin is no one's debt--it's an asset.

A clear indicator of the falsity of what the MMTers call "nominalism" is that sovereigns began coinage with precious metals and then debased the coinage, producing greater numbers of coins and inducing inflation. Without this credible beginning, coinage would have had virtually no value. The MMT narrative also fails to explain the use of cigarettes as currency in POW camps, although this article attempts to discredit the idea as irrelevant. Note that Menger only argued that money was derived from the most liquid commodity, with reference to why that commodity was the most liquid (see Carl MengerPrinciples of Economics, p 257-262). After all, he was one of the founders of the marginal revolution and the concept of subjective value. MMT also fails on the private coinage front, described in George Selgin's Good Money.

It is correct that governments who claim to be on a gold standard go off it in crises. However, this reaction is generally to a specific class of crisis--war. Wray implies that money-printing constraints are removed to cope with financial crises, but this phenomenon is more closely related to interventionist and, later, Keynesian policies that came into vogue in the 20th century.

What I admit that I do not understand, is why currency boards or a gold standard would present a problem. The country that creates its own money through keystrokes should be able to buy the foreign currency it needs on the deep foreign exchange markets or, likewise, acquire gold. Perhaps, gold markets are not deep enough, but surely the forex markets are. How could there be "imprudent expansion of these IOUs relative to ability to actually deliver the foreign currency or gold," when currency may be created without limit to acquire these assets?*

Near the end of the second "reply" we find the following aside: "(If you think about it, calling in all the coins to melt them for re-coinage would be a very strange and pointless activity if coins were already valued by embodied metal!)." But this recoinage makes perfect sense, as it is the method by which the sovereign may default on its debts. Reducing the amount of gold or other valued commodities and replacing them with base metal, while declaring the coins "legal tender" enabled the sovereign to pay of debts and purchase more commodities. This circumstance takes advantage of the non-neutrality of money as the sovereign was the first to use the debased money at current prices--prices that would increase as the new money flowed into circulation.

In the last segment there seems to be a slight-of-hand--the fact that reserves are not lent is paraded as a reason inflation cannot occur; but the reality, which is glossed over when the deposit multiplier is mentioned, is that 10 times reserves (as much as 30 times by investment banks before the financial crisis) may be lent. The fact that the Fed pays interest on excess reserves (reserves that reduce the ratio of lending to reserves) reduces the incentive to make loans, reducing inflation.

Finally, Wray suggests that unemployment will keep inflation down, ignoring the data from 1961 to 1984, along with "rational" increased net savings by firms and households. The latter, of course, increases reserves and, without the demand or the incentive (due to interest being paid on excess reserves) reduces the deposit multiplier and, hence, inflation.

MMT seems to rest on assumptions that are easy to criticize, and it seems to have a very limited following (Bernie Sanders seems to be their political champion). It contradicts our view of the state as incompetent at best and evil at worst. Did some bureaucrat invent money, or was it that a monarch saw the possibilities of wealth extraction that coinage provided? Was it Menger's evolution or political fiat?

So, what do we have here? Primarily, I would say that it is an argument that creation of money by the state does not necessarily lead to hyperinflation. On this point we can agree, as that is rarely the argument. But is money the creation of the state, or simply the commanding of an instrument created by individuals in order to enslave them? The latter is the view of economists in the Mengerian tradition.

* It has come to mind that the MMT people must think that the population of a country, no matter how little confidence they have in the money still must use it to pay debts and taxes, while people of other countries do not need to purchase, causing a collapse in the foreign exchange markets. However, in Zimbabwe, my understanding is that the US$ was being used in private commerce as the currency collapsed. In When Money Dies, Adam Ferguson documents the fact that farmers in Saxony would not accept German paper currency for produce (p 151). The fact is that unlimited production of fiat money can and will produce hyperinflation, even without the mistakes MMTers claim are required.

Friday, July 14, 2017

Daniel Dennett--Out of the Frying Pan into the Fire?

Breaking the Spell: Religion as a Natural Phen...
Breaking the Spell: Religion as a Natural Phenomenon (Photo credit: Wikipedia)
Daniel Dennett gave The Guardian an interview in which he stated the reason for writing a previous book, Breaking the Spell, as being he "was so concerned about the rise of theocracy in America and the overreaching of the religious right." He went on to express his hope that President Trump would resign. I have a great deal of respect for Dennetts intellect and his work, but how is it logical to hope that Trump, a life-long Democrat, will resign, to be replaced by Vice President Mike Pence, an evangelical Christian?

It seems to me that Dennett's dislike of Trump is causing a short-circuit in his thinking that could lead to an outcome he likes even less.

Sunday, June 25, 2017

On Individuals

English: GFDL picture of F.A. Hayek to replace...
English: GFDL picture of F.A. Hayek to replace fair use images that are used in some articles. Released by the Mises Institute. (Photo credit: Wikipedia)
English: Ludwig von Mises in his library
English: Ludwig von Mises in his library (Photo credit: Wikipedia)
Someone with whom I generally agree has written in ways that seem to place a lesser value on individuals than on institutions or processes in societal evolution. These ideas were presented as a conflict, however minor, between the thought of Ludwig von Mises and Friedrich Hayek. When I was first confronted with this proposition, it was a surprise; and, while I felt uncomfortable with it, I did not have a ready reply. After additional thought, I have a response:
Individuals are the units of mutation in societal evolution, and without them there are no institutions and there is no evolutionary process.
I mean by this statement that every change in an institutionevery step in societal evolutionrequires the choice of an individual. These choices require rationality, in Mises's minimal sense of the term, and may produce many consequencesintended or unintendedthat then may lead to modification or even rejection of the choice.

To take Menger's narrative of the evolution of money, some individual(s) must have chosen the commodity that then became the most liquid. At first it would only have been the idea that a specific exchange could be accomplished with this commodity. But then, others may have observed the success and chimed inan unintended consequence or, to quote Adam Ferguson, "the result of human action, but not the execution of any human design."

Suggesting that individuals are the units of mutation is intended to tie a direct link between societal evolution and biological evolution. The argument that biological evolution is "random," while societal evolution is not, is to misunderstand both. Both biological and societal evolution stand upon previous developments that were required to support the next tentative step. Just as the biological space must be littered with so many failures, so must the societal space be littered with discarded, unworkable ideas. It must also be understood that biological dead ends and bad ideas may exist indefinitely, as long as they are able to survive in some ecological niche.

In this vast background of ideas, the mutations created by individuals may exhibit similarities, but rarely congruence. In the realm of economics the marginal revolution was credited to three economistsWalras, Jevons, and Menger—but the three expressed these ideas differently, with Menger using a non-mathematical approach that is still considered superior by members of the Austrian school.

In my own case I would argue that I have combined the ideas of Mises, Hayek, and Popper, while adding a little sauce of my own,* to produce something that is superior to what any of them advocated. There is no doubt that some people are on the same track, playing in the same sandbox as I am—Matt Ridley, to whom I suggested a reason for the resistance of politics to evolution, is definitely one. My hope is that someone with more credibility and ability to communicate either stumbles on my efforts or comes up with something similar on his own, as our species seems, after a brief respite, to be heading for another Great War.

*This fails to acknowledge those in my intellectual history, including Robert LeFevre, Andrew J.Galambos, Richard Sprague, and Rafe Champion, among others, who have influenced and guided me in my "unended quest" to figure out what the hell is going on.

Edit:

In an article by Richard Ebeling I came across a supportive quote from Mises (Theory and History, p 196):
But the historical process is not designed by individuals. It is the composite outcome of the intentional actions of all individuals. No man can plan history. All he can plan and try to put into effect is his own actions that, jointly with the actions of other men, constitute the historical process. The Pilgrim Fathers did not plan to found the United States.

Tuesday, February 14, 2017

Evolutionary Liberalism

Although this blog is named "The Radical Liberal," my thinking has taken a decidedly evolutionary turn. In a sense that turn is even more radical, but I think that it is time for me to attach a more descriptive term than "radical" to this liberalism—"evolutionary."

The characteristics of evolutionary liberalism are that it embraces universal Darwinism and takes trial-and-error, evolutionary learning as the only way forward for humanity. It argues that the pursuit of such learning is inhibited by what people call "government" or "the state"—that the state is itself a failed experiment.

The social embodiment of this learning process is what is generally called "the market," discussed previously in my paper "Let Go and Let the Market," referenced in another post on this blog. The ideas in that paper have been developed further, and money profit identified as the selection mechanism for societal evolution.

The philosophy of evolutionary liberalism is heavily influenced by the scientific philosophy of Karl R. Popper (not his generally-flawed political and economic thinking) and the economics of the Austrian school, as elucidated by Ludwig von Mises and Friedrich Hayek. These thinkers are influences and there is no argument that they would agree with or support evolutionary liberalism. This is not a project to argue about what they thought, but to use use their work as inspiration for ever bolder conjectures.

I am quite sure that I many people are circling around these ideas, including Matt Ridley and Daniel Dennett. Although they are far more well known and knowledgeable than I, they seem to have missed the basic problem of the state and its "solution." When it comes to them, or other widely-read thinkers, we might have a renaissance of true liberalism.

Contra Hayek, Cultural Evolution IS Darwinian

In Hayek's The Fatal Conceit (1988) there is a section titled "The Mechanism of Cultural Evolution Is Not
Darwinian." Within the section Hayek takes the position that Darwinian theory applies only to biological and not cultural evolution. He writes that "cultural evolution simulates Lamarkism" (25).

However, when we take an abstract view of Darwinism—variation, selection, and retention—we see that Hayek is mistaken. The problem of Lamarkism is not that characteristics are acquired, as characteristics resulting from mutations are also acquired; but that there is no mechanism of retention. Rather than DNA, it is the institutions of society that pass on the mutations of society—the new ideas, technologies, and customs. The mechanism of cultural retention is what Karl Popper called World 3 (1972).

The mention of World 3 prompts the suggestion that DNA is also a World 3 phenomenon created by processes in the cell for purposes of retention. Where this suggestion leads is anybody's guess.

Bibliography

Hayek, F.A., 1988, The Fatal Conceit, Chicago, University of Chicago Press.
Popper, K.R., 1972, "On the Theory of the Objective Mind" in Objective Knowledge, London, Oxford University Press, 153-190.