What’s It All About?

by Gene Callahan

“History justifies whatever we want it to. It teaches absolutely nothing, for it contains everything and gives examples of everything.”
—Paul Valéry, De l’historie, Regards sur le monde actuel

My friend Larry White presented at the colloquium yesterday. He gave a nice presentation on the Roaring Twenties and the Great Depression, discussing the various policy recommendations that economists had offered at that time, and marshalling empirical evidence indicating that Mises and Hayek had gotten things essentially right in regards to those events.

But the paper raised, for me, the question of what “good” these sort of efforts yeild, in so far as they are aimed at practical persuasion. However substantial the evidence, however well written the argument — I note this, for one thing, to point out that what I’m writing here was prompted by hearing Larry present his paper, but is in no way directed at it in particular — it seems that everyone “learns” from these historic episodes whatever it is that they already believed.

Take the recent downturn. Interventionists “learned” from it that unregulated markets produce disaster. Libertarians “learned” from it that the attempt to regulate markets produces disaster. And I know of one prominent supporter of the kind of intermediate policy we actually had who declared that, if only the Fed had cut rates at the right moment, when he recommended it, all would have been well.

Does the “evidence” from history ever persuade anyone of anything they didn’t already believe? (I’m being hyperbolic, of course.)

8 thoughts on “What’s It All About?

  1. Isn’t this part of Mises’ criticism of empiricism, that without sound theory one can make data show whatever one wants them to show? That because of this empiricism without sound theory teaches us nothing useful?

    When two sincere and fully informed economists can look at the same data and come to opposite conclusions then the issue is clearly not empirical but theoretical.

    If this is the case then theories based on realistic assumptions that describe actual market phenomena as they occur in the real world (Austrian) are superior to those based on unrealisitic assumptions and idealized mathematical models (Keynesian/Monetarist).

  2. Not sure I agree with the quote, I think there are some empirical conclusions you can draw from history. And generally speaking, knowledge of past events can help one predict future events.

    I think the main trouble with economics is its very complicated, murky, plus its heavily politicized.

  3. Probably you are already familiar with Thomas Kuhn’s book “The Structure of Scientific Revolutions”. But, if not, I recommend it. Kuhn offers a believable account for both:
    1. how people believe things, and stick to their beliefs, and
    2. new theories achieve dominance (as old people die off!)

  4. Gene,

    I was fairly convinced that “speculators” weren’t responsible for the run-up in oil prices in the summer of 2008, but when I step back and look at the price charts, I am not so sure. Because that price chart sure looks like a bubble.

    At the very least, it forced me to revisit the arguments that seemed airtight to me at the time, to see if maybe there was something ambiguous that I had just assumed had to go a certain way.

    Obviously I didn’t completely flip and end up thinking the government should have cracked down on futures traders, but I am more open to idea that they pushed the price up above the “fundamentals” than I was last summer.

  5. This is the question, isn’t it? The problem with theory is that Austrians have lost that debate because most economists and politicians aren’t interested in theory.

    The current mindset is, as you know, “empirical research is everything.” Keynesians think they understand theory but they don’t. Austrians will win the debate on theory but so what. They haven’t budged the needle in public debate.

    So when you get down to “practical persuasion” how are you going to convince people of the validity of Austrian thought?

    I’m sorry to bring this argument down to the retail level, but one of the prongs of attack has got to be convincing, brilliant empirical research. In order to affect policy in today’s world you’ve got to win first on facts not theory. That’s what people listen to.

    No offense, but I find this kind of discussion to be resigned defeatism. I’ve been following this stuff since the late ’60s and, apparently, according to our president, the debate is over. What’s the plan to change the world, folks?

  6. ‘Obviously I didn’t completely flip and end up thinking the government should have cracked down on futures traders, but I am more open to idea that they pushed the price up above the “fundamentals” than I was last summer.’

    Yes, I was clearly being hyperbolic — sometimes, people do change thier minds based on ‘the evidence’ — just not very often!

  7. ‘No offense, but I find this kind of discussion to be resigned defeatism.’

    So trying to discover the truth about something is ‘defeatism’ — and I guess if the truth should be ignored in order to ‘win’, so be it!

  8. Gene:

    Look, I have a high degree of respect for Austrian scholars. But why do Austrians not have a seat at the policy table? Especially now when it’s so vital to our well being.

    Again, I’m trying to be respectful, but why do you fall back on “truth” as a cover for defeatism. Why do libertarians continue to lose influence while they continue to preach the “truth.”

    If we really want to change the world, maybe we should try another tactic. We are marginalized in public debate. When you disparage the efforts of a fellow scholar because it is mere empiricism you miss the entire point. And please, I understand Mises’ concept of a priori analysis vs. empiricism.

    Another thing to ask, is that with all the truth on our side, why is Keynes the preeminent influence in economics today? You think maybe there was a war going on and you missed it while you were seeking truth?

    I suggest that we take up the cudgel of debate and show when, where, and why Keynes has always failed. Maybe then people will pay attention to truth.

    I write, passionately, about this stuff: http://www.dailycapitalist.com

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