Schumpeter on the future of capitalism

[George H. Smith]

While going through some old computer files earlier today, I happened across some notes I took many years ago about Joseph A. Schumpeter's classic book, Capitalism, Socialism, and Democracy (3rd ed., 1950).

Schumpeter was very pessimistic about the future of capitalism. These notes, though sketchy and incomplete, indicate why, and they might provoke an interesting discussion.

Capitalism has an inner dynamic that produces hostility to its own culture; specifically, it “creates a critical frame of mind which, after having destroyed the moral authority of so many other institutions, in the end turns against its own.”

Given “the impressive economic and cultural achievements of capitalism, and the still more impressive cultural achievement of the capitalist order and…the immense promise held out by both” (p. 129), is it not possible for capitalism to be defended for its utilitarian values, such as its success in alleviating the poverty of the masses to an unprecedented degree?

Yes, replies Schumpeter -- but such defenses, however valid they may be intellectually, are often irrelevant to the practical world of politics. It is a mistake to believe that political attacks on capitalism can “be met effectively by rational argument.” Rational refutations “can never reach the extra-rational driving power that always lurks behind” the attacks on capitalism.

Capitalism “stands its trial before judges who have the sentence of death in their pockets. They are going to pass it, whatever the defense they may hear; the only success victorious defense can possibly produce is a change in the indictment” (p. 144).

Utilitarian arguments for capitalism, which stress its long-range benefits, typically fall on deaf ears when addressed to the masses. This is especially true of those “have-nots” who envy those who are better off and who feel they have been victimized by the capitalist system. And even those who do not feel this way lack the intellectual capacity to evaluate an economic system according to long-run considerations. “For the masses, it is the short-run that counts” (p. 145).

Every socio-economic system will breed discontent and hostility , but capitalism suffers from an inability to generate an emotional attachment to its social order. And without this emotional component, hostile impulses will grow unchecked. The benefits of capitalism, such as “ever-rising standards of life,” are taken for granted, while immediate grievances are blamed on that selfsame system.

But such grievances, whether real or imagined, are not adequate to sustain an active hostility to capitalism. This requires the existence of “groups to whose interest it is to work up and organize resentment, to nurse it, to voice it, and to lead it” (p. 145).

[Bryce]

While going through some old computer files earlier today, I happened across some notes I took many years ago about Joseph A. Schumpeter's classic book, Capitalism, Socialism, and Democracy (3rd ed., 1950).

Schumpeter was very pessimistic about the future of capitalism. These notes, though sketchy and incomplete, indicate why, and they might provoke an interesting discussion.

...

But such grievances, whether real or imagined, are not adequate to sustain an active hostility to capitalism. This requires the existence of “groups to whose interest it is to work up and organize resentment, to nurse it, to voice it, and to lead it” (p. 145).

There's one overreaching problem with the market that I can't identify. But when I try I usually use the phrase, "customer service". A better description lies in the ways in which businesses are asked by the market to be subservient to consumers. And then in how businesses have become servants to the market. And antitrust laws are largely responsible for keeping businesses in a state of servitude. But the worst part is that the salesmen pitching a free market system have no idea what a free market should look like and that they would reel in terror if they knew what they were advocating (which is selfishness, the requisite capitalism).

I keep rewriting this but I've stopped because I can't condense or explain everything in such short order. But know that this is not a question on the future of capitalism, it's a question on the future of this market. And what's driving this market doesn't have capitalism in it's plans.

[dan2100]

There's one overreaching problem with the market that I can't identify. But when I try I usually use the phrase, "customer service". A better description lies in the ways in which businesses are asked by the market to be subservient to consumers. And then in how businesses have become servants to the market. And antitrust laws are largely responsible for keeping businesses in a state of servitude. But the worst part is that the salesmen pitching a free market system have no idea what a free market should look like and that they would reel in terror if they knew what they were advocating (which is selfishness, the requisite capitalism).

I keep rewriting this but I've stopped because I can't condense or explain everything in such short order. But know that this is not a question on the future of capitalism, it's a question on the future of this market. And what's driving this market doesn't have capitalism in it's plans.

Regarding antitrust laws, I don't see businesses as innocent, ignorant victims here. They often lobby and even champion for their use.

[Bryce]

There's one overreaching problem with the market that I can't identify. But when I try I usually use the phrase, "customer service". A better description lies in the ways in which businesses are asked by the market to be subservient to consumers. And then in how businesses have become servants to the market. And antitrust laws are largely responsible for keeping businesses in a state of servitude. But the worst part is that the salesmen pitching a free market system have no idea what a free market should look like and that they would reel in terror if they knew what they were advocating (which is selfishness, the requisite capitalism).

I keep rewriting this but I've stopped because I can't condense or explain everything in such short order. But know that this is not a question on the future of capitalism, it's a question on the future of this market. And what's driving this market doesn't have capitalism in it's plans.

Regarding antitrust laws, I don't see businesses as innocent, ignorant victims here. They often lobby and even champion for their use.

That's fair but it wasn't where I was going (actually I was aiming for the detrimental impact that businessmen have allowed consumers to make, namely in how consumers are allowed to run markets).

Edited June 26, 2010 by Bryce

[dan2100]

There's one overreaching problem with the market that I can't identify. But when I try I usually use the phrase, "customer service". A better description lies in the ways in which businesses are asked by the market to be subservient to consumers. And then in how businesses have become servants to the market. And antitrust laws are largely responsible for keeping businesses in a state of servitude. But the worst part is that the salesmen pitching a free market system have no idea what a free market should look like and that they would reel in terror if they knew what they were advocating (which is selfishness, the requisite capitalism).

I keep rewriting this but I've stopped because I can't condense or explain everything in such short order. But know that this is not a question on the future of capitalism, it's a question on the future of this market. And what's driving this market doesn't have capitalism in it's plans.

Regarding antitrust laws, I don't see businesses as innocent, ignorant victims here. They often lobby and even champion for their use.

That's fair but it wasn't where I was going (actually I was aiming for the detrimental impact that businessmen have allowed consumers to make, namely in how consumers are allowed to run markets).

I don't understand what you mean here. Do you mean consumers get in the way of business plans?

[Bryce]

I'm a salesman; I present my product to a prospective buyer in a way that agrees with his whims. If I qualify him well enough I'm able to bait him along until he buys. But that teaches my buyer that what he wants is what's important in the sale and that he's the authority who makes the sale. This sales process was taught to me and reconfirmed by every sales manager and sales trainer I've had, and it makes sales. Unfortunately, the inference the process makes is also what consumers, and therefore the market(s), have come to expect, which is absolute control over the sale.

Edited July 2, 2010 by Bryce

[Michael Stuart Kelly]

Bryce,

In your sales training, were you taught the difference between perceived value and actual value?

This point is strongly focused on in the Internet marketing literature, especially in copywriting.

The good ones claim that to be ethical, you should sell the customer's perceived value to him, since that is what makes the most sales, but make sure you deliver actual value. In fact, overdelivering is considered a very good thing, whether perceived or actual.

Michael

[Bryce]

Bryce,

In your sales training, were you taught the difference between perceived value and actual value?

This point is strongly focused on in the Internet marketing literature, especially in copywriting.

The good ones claim that to be ethical, you should sell the customer's perceived value to him, since that is what makes the most sales, but make sure you deliver actual value. In fact, overdelivering is considered a very good thing, whether perceived or actual.

Michael

No. What do you mean by, "make sure you deliver actual value"?

[Michael Stuart Kelly]

Bryce,

Just for clarity, actual value and perceived value are not opposites. Often they go hand-in-hand. But they are different. And, in the case I mentioned, if a person is persuaded to buy something by a strong perceived value message and not receive any actual value, he/she will feel duped.

Here is an example--an acne product. Why does a person buy it? Ideally, to get rid of acne. The actual value of the product, thus, is its capacity to get rid of acne.

But why does the person want to get rid of acne? Basically, to look good to the opposite sex (or same sex if not hetero). And that even cuts deeper into the insecurity acne can cause, especially to people who already have a social awkwardness issue. Acne can even cause a social awkwardness problem. Perceived value deals with these things. The person values the acne product a s form of achieving a solution to these problems, not just acne.

Let's look at the two approaches.

First, an actual value only approach. You have a product that claims it will cure acne, period--end of story.

Now, perceived value. Another product claims it will improve your acne problem--but also transmits the message that this will make you more attractive and less inhibited, thus happier, more popular and more successful at dating.

Which do you think people will buy? Almost always they will buy the second.

Notice that the second does not even promise to cure the problem like the first does, merely improve it.

Now here's the weird thing about us humans. People will buy based on perceived value, but they rarely expect to receive it. For instance, if they do not become more attractive or popular or successful at dating, they will not feel anger. But if the actual value is missing, i.e., the product does not get rid of acne to some degree, the person will feel duped.

Here is where over-delivery (for actual value) comes in. If the product performs acne-wise as the ads claim, but also--unannounced--makes the skin softer to the touch, or provides a pleasant aroma, or some other easy-to-detect benefit, this will tend to clinch the product loyalty-wise in the repeat customer. It will not matter that he/she did not get more dates as a result of using it.

But, except for dire necessities, a person almost always initially buys something--or prefers one thing over another--because of perceived value, not actual value.

How much junk have you bought that you find out later you did not really want or need? And you wondered what on earth you were thinking when you bought it. I know I have bought tons of stuff like that.

Michael

[studiodekadent]

I've always found it puzzling that Objectivists have rarely engaged with Schumpeter and Schumpeterian thought. If anyone in economics shares Rand's aesthetic veneration of the entrepreneur, its Schumpeter (much moreso than even the Austrians, aesthetically (not intellectually) speaking).

And Schumpeter's real life mannerisms were very larger-than-life, like a Randian hero himself.

My upcoming article (which myself and my co-author are planning on submitting to JARS) will acknowledge Schumpeter and the surprising absense of engagement.

[anonrobt]

Bryce,

Just for clarity, actual value and perceived value are not opposites. Often they go hand-in-hand. But they are different. And, in the case I mentioned, if a person is persuaded to buy something by a strong perceived value message and not receive any actual value, he/she will feel duped.

Here is an example--an acne product. Why does a person buy it? Ideally, to get rid of acne. The actual value of the product, thus, is its capacity to get rid of acne.

But why does the person want to get rid of acne? Basically, to look good to the opposite sex (or same sex if not hetero). And that even cuts deeper into the insecurity acne can cause, especially to people who already have a social awkwardness issue. Acne can even cause a social awkwardness problem. Perceived value deals with these things. The person values the acne product a s form of achieving a solution to these problems, not just acne.

Let's look at the two approaches.

First, an actual value only approach. You have a product that claims it will cure acne, period--end of story.

Now, perceived value. Another product claims it will improve your acne problem--but also transmits the message that this will make you more attractive and less inhibited, thus happier, more popular and more successful at dating.

Which do you think people will buy? Almost always they will buy the second.

Notice that the second does not even promise to cure the problem like the first does, merely improve it.

Now here's the weird thing about us humans. People will buy based on perceived value, but they rarely expect to receive it. For instance, if they do not become more attractive or popular or successful at dating, they will not feel anger. But if the actual value is missing, i.e., the product does not get rid of acne to some degree, the person will feel duped.

Here is where over-delivery (for actual value) comes in. If the product performs acne-wise as the ads claim, but also--unannounced--makes the skin softer to the touch, or provides a pleasant aroma, or some other easy-to-detect benefit, this will tend to clinch the product loyalty-wise in the repeat customer. It will not matter that he/she did not get more dates as a result of using it.

But, except for dire necessities, a person almost always initially buys something--or prefers one thing over another--because of perceived value, not actual value.

How much junk have you bought that you find out later you did not really want or need? And you wondered what on earth you were thinking when you bought it. I know I have bought tons of stuff like that.

Michael

Well said...

[Jerry Biggers]

I've always found it puzzling that Objectivists have rarely engaged with Schumpeter and Schumpeterian thought. If anyone in economics shares Rand's aesthetic veneration of the entrepreneur, its Schumpeter (much moreso than even the Austrians, aesthetically (not intellectually) speaking).

And Schumpeter's real life mannerisms were very larger-than-life, like a Randian hero himself.

My upcoming article (which myself and my co-author are planning on submitting to JARS) will acknowledge Schumpeter and the surprising absense of engagement.

Sounds like an interesting concept for an article. Definately worth the effort.

I believe that Schumpeter is generally classified as from the "Austrian" school. Many comteporary surveys of economic theories rarely discuss or even mention the Austrians, When they do, it is usually a brief reference to Menger or Bohm-Bawerk. 20th century Austrians are seldom discussed in any detail. A brief mention of Hayek (usually referring to his "popular" works such as The Road to Serfdom and less reference to his more detailed scholarly works such as the Constitution of Liberty and his multi-volume Law, Legislation and Liberty). Mises receives even less notice, usually a footnote. Rothbard is rarely mentioned at all.

Schumpeter, however, often is given space in the economic theories survey books. Why? Probably because Schumpeter was decidedly pessimistic about capitalism's future. Socialists like Robert Heilbroner, liked that, and would often cite Schumpeter precisely because he concedes the battle to socialism (or that's how he is represented).

I have not seen reference to Schumpeter by Objectivist or Objectivist-leaning economists. It's possible that he was mentioned in one of the myriad talks from past ARI events and may have been recorded, where it now resides in sort of an ARIan limbo. If he has been discussed in print, I must have missed it.

Schumpeter may have received little or no attention by Objectivists for the same reason that the socialists cite him: conceding the ideological battle to socialism. I agree, however, that he has many interesting and useful insights that are well worth exploring. An additional benefit is that he writes well, something often lacking in economics texts.

[studiodekadent]

I believe that Schumpeter is generally classified as from the "Austrian" school.

Actually, Schumpeter isn't Austrian School. He's best considered an "Evolutionary" economist, or at least a precursor of it (the kind of Evolutionary economics I work with is basically Hayek meets Schumpeter).

Many comteporary surveys of economic theories rarely discuss or even mention the Austrians, When they do, it is usually a brief reference to Menger or Bohm-Bawerk. 20th century Austrians are seldom discussed in any detail. A brief mention of Hayek (usually referring to his "popular" works such as The Road to Serfdom and less reference to his more detailed scholarly works such as the Constitution of Liberty and his multi-volume Law, Legislation and Liberty). Mises receives even less notice, usually a footnote. Rothbard is rarely mentioned at all.

Really? I've seen plenty of Hayek references, both directly to him and as an influence on others. Economics faculties are generally much more pro-market than you seem to realize. Take it from me, I did both BEcon and MBusEcon and Hayek gets quite a bit of publicity. Mises rarely does, though, I admit, and I never even heard the name "Rothbard" in an economics lecture. But honestly, the Austrians are not considered "unmentionable", at least where I studied (The University of Queensland).

Schumpeter, however, often is given space in the economic theories survey books. Why? Probably because Schumpeter was decidedly pessimistic about capitalism's future. Socialists like Robert Heilbroner, liked that, and would often cite Schumpeter precisely because he concedes the battle to socialism (or that's how he is represented).

Please don't take this personally, but please, not another "its the leftists' fault!" Objectivist conspiracy theory...

Schumpeter was indeed pessimistic about Capitalism's future. He believed that the managed Keynesian-style economies would destroy the innovative culture free markets require. But Schumpeter WAS a classical liberal, he supported free markets. To say he "conceded the ideological battle to socialism" is false; he conceded nothing. All he said was that the managed economics of the 1950's would create a Corporate-Statist-Mercantilist style economy that would crush innovation. A society that prioritized the "organization man" that fit in to his large corporate bureaucracy would not be a society friendly to the defiant Promethean entrepreneur that free markets need. And in this, Schumpeter was right. Look at the East Asian economies; they aren't very innovative (measuring by patents granted) and they have almost no social mobility.

The West managed (to some degree) to either avoid or delay Schumpeter's prophecy from coming true. But Schumpeter never said Socialism was better than Free Markets. One citation from Robert Heilbroner proves nothing at all and if Heilbroner was indeed arguing that Schumpeter conceded the battle to the socialists, he's misrepresenting Schumpeter.

Also, neither Friedman nor Hayek were pessimistic about the future of free markets, and both of them get quite a few mentions in the economics textbooks I've read.

Schumpeter may have received little or no attention by Objectivists for the same reason that the socialists cite him: conceding the ideological battle to socialism. I agree, however, that he has many interesting and useful insights that are well worth exploring. An additional benefit is that he writes well, something often lacking in economics texts.

I have a different theory; far too many Objectivists are way too conservative about building bridges with other schools of thought. The only economist many of them dare cite is Mises. All other economists are usually mentioned with a mixture of sneers and denunciations. Hayek has several areas of common ground with Objectivism, but Rand unfortunately decided to call him "real poison" (on the basis of what I believe to be severe misunderstanding) and since then, there have been very few attempts to look at Hayek on, say, empirical context (which he shares in common with Rand), the dangers of rationalism/intrinsicism (another point in common), and how ideas and values and principles shape societies (another point in common).

I would like to state that I am an Objectivist (open-system) so don't construe my frustration with some other Objectivists as being frustration with Objectivism itself.

[Jerry Biggers]

I believe that Schumpeter is generally classified as from the "Austrian" school.

Actually, Schumpeter isn't Austrian School. He's best considered an "Evolutionary" economist, or at least a precursor of it (the kind of Evolutionary economics I work with is basically Hayek meets Schumpeter).

Many comteporary surveys of economic theories rarely discuss or even mention the Austrians, When they do, it is usually a brief reference to Menger or Bohm-Bawerk. 20th century Austrians are seldom discussed in any detail. A brief mention of Hayek (usually referring to his "popular" works such as The Road to Serfdom and less reference to his more detailed scholarly works such as the Constitution of Liberty and his multi-volume Law, Legislation and Liberty). Mises receives even less notice, usually a footnote. Rothbard is rarely mentioned at all.

Really? I've seen plenty of Hayek references, both directly to him and as an influence on others. Economics faculties are generally much more pro-market than you seem to realize. Take it from me, I did both BEcon and MBusEcon and Hayek gets quite a bit of publicity. Mises rarely does, though, I admit, and I never even heard the name "Rothbard" in an economics lecture. But honestly, the Austrians are not considered "unmentionable", at least where I studied (The University of Queensland).

Schumpeter, however, often is given space in the economic theories survey books. Why? Probably because Schumpeter was decidedly pessimistic about capitalism's future. Socialists like Robert Heilbroner, liked that, and would often cite Schumpeter precisely because he concedes the battle to socialism (or that's how he is represented).

Please don't take this personally, but please, not another "its the leftists' fault!" Objectivist conspiracy theory...

Schumpeter was indeed pessimistic about Capitalism's future. He believed that the managed Keynesian-style economies would destroy the innovative culture free markets require. But Schumpeter WAS a classical liberal, he supported free markets. To say he "conceded the ideological battle to socialism" is false; he conceded nothing. All he said was that the managed economics of the 1950's would create a Corporate-Statist-Mercantilist style economy that would crush innovation. A society that prioritized the "organization man" that fit in to his large corporate bureaucracy would not be a society friendly to the defiant Promethean entrepreneur that free markets need. And in this, Schumpeter was right. Look at the East Asian economies; they aren't very innovative (measuring by patents granted) and they have almost no social mobility.

The West managed (to some degree) to either avoid or delay Schumpeter's prophecy from coming true. But Schumpeter never said Socialism was better than Free Markets. One citation from Robert Heilbroner proves nothing at all and if Heilbroner was indeed arguing that Schumpeter conceded the battle to the socialists, he's misrepresenting Schumpeter.

Also, neither Friedman nor Hayek were pessimistic about the future of free markets, and both of them get quite a few mentions in the economics textbooks I've read.

Schumpeter may have received little or no attention by Objectivists for the same reason that the socialists cite him: conceding the ideological battle to socialism. I agree, however, that he has many interesting and useful insights that are well worth exploring. An additional benefit is that he writes well, something often lacking in economics texts.

I have a different theory; far too many Objectivists are way too conservative about building bridges with other schools of thought. The only economist many of them dare cite is Mises. All other economists are usually mentioned with a mixture of sneers and denunciations. Hayek has several areas of common ground with Objectivism, but Rand unfortunately decided to call him "real poison" (on the basis of what I believe to be severe misunderstanding) and since then, there have been very few attempts to look at Hayek on, say, empirical context (which he shares in common with Rand), the dangers of rationalism/intrinsicism (another point in common), and how ideas and values and principles shape societies (another point in common).

I would like to state that I am an Objectivist (open-system) so don't construe my frustration with some other Objectivists as being frustration with Objectivism itself.

The issue of whether Schumpeter was a "member" of the Austrian School of economic theory is probably not very important. However, the issue is controversial among economists. Here is a link to an economist claiming that Schumpeter's positions are more consistent with those of the Austrian school: http://books.google.com/books?id=Y0kYinlHadoC&pg=PA1&lpg=PA1&dq=joseph+schumpeter+austrian+economics&source=bl&ots=mFGfHPtZYI&sig=hxlo_aPwEHh7Ww04I4QLdUxeRqo&hl=en&ei=BudrTMizOsH-8Aa-x-DBDA&sa=X&oi=book_result&ct=result&resnum=9&ved=0CDYQ6AEwCDgK#v=onepage&q=joseph%20schumpeter%20austrian%20economics&f=false

I did not claim that there was a "conspiracy" nor did I imply that "It's the leftists fault." I have never heard any Objectivist claim that. It's not an issue of fault or conspiracy, it's what Schumpeter said: that socialism would triumph over capitalism despite the demonstrable economic successes of the capitalist system. That is certainly one of the main reasons that he is often quoted (and quoted to that effect). Parenthetically, I think Objectivism can explain why this is happening: the altruistic ethics are undermining the foundations of capitalism.

The Austrians generally are not well accepted because they have ruled out the importance of statistical or mathematical modeling. That is, they are not empirical enough in their methodology. I will be glad to give you a reference to an online economics encyclopedia where this reason is given for the lack of greater influence by the Austrians. I'm not agreeing with this position, I'm merely citing it.

Friedman and other free market economists in the "Chicago School" have a more favorable evaluation from most economists because they do utilize more empirical and mathematical methods.

Unfortunately, many Objectivists (primarily from the ARIan camp) are not interested in "building bridges" with other schools of thought. If they were totally consistent, they should also have avoided the Austrians because of the Austrians' subjectivist and Kantian foundations. On these issues, however, Rand chose to "look the other way," as Mises and Hazlitt were friends of hers. As you probably know, Rand did not apply this "exception to the rule" in many other cases (e.g., other libertarians).

Hayek is a mixed case. David Kelley has lectured on the differances between Rand's and Hayek's epistemological methods. A copy of his lecture should soon be available either through the Atlas Society website or from FreeMinds2010 website.

For what it is worth, I think that valuable material and arguments are presented by defenders of individual liberty and the free market from varied philosophical foundations. Ideas should be evaluated on their own merits and whether they can be empirically and logically validated. Rand, in essence, would agree with that.

Edited August 19, 2010 by Jerry Biggers

[studiodekadent]

I'm aware of the usual argument against the Austrians (BEcon and MBusEcon here, and I consider myself Austrian/Evolutionary). I know you aren't agreeing with that position; because as far as I'm concerned I think it is mainstream economics that is unempirical; mainstream economics reifies mathematics and is full of floating abstractions. Of course, many economists realize that this mathematical stuff should be taken only generally; but when quantitative analysis comes into the equation, this "generality" gets thrown out the window, unfortunately.

I agree with Bohm Bawerk; it is the Austrians that are empirical because they are spelling out the implications of empirical facts. Empirical Foundationalism (i.e. deduction from empirically-justified first principles) is not rationalism. Again, I know you aren't arguing in favor of the mainstream-economic position, so don't take this as an attack.

Where I will disagree with you is your statement that "if they (Orthodox Objectivists) were totally consistent, they should also have avoided the Austrians because of the Austrians' subjectivist and Kantian foundations." This is untrue on both counts. The Austrians are economic subjectivists, i.e. they accept the subjective theory of exchange value. This does not require one accept epistemic subjectivism (nominalism), or ethical subjectivism. But unfortunately, some Objectivists find "subjectivism" to be a dirty word and they automatically assume any use of "subjectivism" to imply metaphysical, epistemic or ethical subjectivism. An example: George Reisman claims he disagrees with the subjective theory of economic value, but he ultimately concedes in his book Capitalism that prices are indeed ultimately determined by opportunity cost (which thus requires economic subjectivism). In other words, he tries to accept economic subjectivism without using "the S Word" (see Tabarrok, A (1997), Book Reviews, Review of Austrian Economics (1997) 10, no. 2: 115-131).

As for Kantian foundations, that's a Frozen Abstraction; Mises was indeed a neo-Kantian rationalist but he was the only rationalist in the bunch (Menger, Bohm Bawerk, Weiser, Hayek were all empirical foundationalists). Austrian Economics is more than Mises and does not need to include Mises' stances on epistemology. I should add that I have great respect for Mises and believe he made invaluable contributions and I basically am in agreement with his microeconomics (and I believe my own methodology is consistent with his). However as an Objectivist I disagree with his epistemology.

I know Kelley did a speech on Hayek. To be honest, I am pessimistic (even if I hold much respect for Kelley). Rand (and Rothbard) frequently misinterpreted Hayek and I'd be pleasantly surprised if Kelley has broken this trend. Hayek was indeed not an Objectivist, epistemically (he started as a neo-Kantian like Mises, then became a Popperian). However, he is much closer to Rand on epistemological issues than Mises; indeed I think Popper had a similar theory of universals to Rand. Still, I would be (sadly) not surprised if Kelley decided to Hayek-bash in his speech. Anyway, one doesn't need to accept Objectivist epistemology to be a good economist, as shown by Mises and Hayek both (Objectivists without fail accept the Economic Calculation Problem and the Austrian Business Cycle theory).

[Jerry Biggers]

I'm aware of the usual argument against the Austrians (BEcon and MBusEcon here, and I consider myself Austrian/Evolutionary). I know you aren't agreeing with that position; because as far as I'm concerned I think it is mainstream economics that is unempirical; mainstream economics reifies mathematics and is full of floating abstractions. Of course, many economists realize that this mathematical stuff should be taken only generally; but when quantitative analysis comes into the equation, this "generality" gets thrown out the window, unfortunately.

I agree with Bohm Bawerk; it is the Austrians that are empirical because they are spelling out the implications of empirical facts. Empirical Foundationalism (i.e. deduction from empirically-justified first principles) is not rationalism. Again, I know you aren't arguing in favor of the mainstream-economic position, so don't take this as an attack.

Where I will disagree with you is your statement that "if they (Orthodox Objectivists) were totally consistent, they should also have avoided the Austrians because of the Austrians' subjectivist and Kantian foundations." This is untrue on both counts. The Austrians are economic subjectivists, i.e. they accept the subjective theory of exchange value. This does not require one accept epistemic subjectivism (nominalism), or ethical subjectivism. But unfortunately, some Objectivists find "subjectivism" to be a dirty word and they automatically assume any use of "subjectivism" to imply metaphysical, epistemic or ethical subjectivism. An example: George Reisman claims he disagrees with the subjective theory of economic value, but he ultimately concedes in his book Capitalism that prices are indeed ultimately determined by opportunity cost (which thus requires economic subjectivism). In other words, he tries to accept economic subjectivism without using "the S Word" (see Tabarrok, A (1997), Book Reviews, Review of Austrian Economics (1997) 10, no. 2: 115-131).

As for Kantian foundations, that's a Frozen Abstraction; Mises was indeed a neo-Kantian rationalist but he was the only rationalist in the bunch (Menger, Bohm Bawerk, Weiser, Hayek were all empirical foundationalists). Austrian Economics is more than Mises and does not need to include Mises' stances on epistemology. I should add that I have great respect for Mises and believe he made invaluable contributions and I basically am in agreement with his microeconomics (and I believe my own methodology is consistent with his). However as an Objectivist I disagree with his epistemology.

I know Kelley did a speech on Hayek. To be honest, I am pessimistic (even if I hold much respect for Kelley). Rand (and Rothbard) frequently misinterpreted Hayek and I'd be pleasantly surprised if Kelley has broken this trend. Hayek was indeed not an Objectivist, epistemically (he started as a neo-Kantian like Mises, then became a Popperian). However, he is much closer to Rand on epistemological issues than Mises; indeed I think Popper had a similar theory of universals to Rand. Still, I would be (sadly) not surprised if Kelley decided to Hayek-bash in his speech. Anyway, one doesn't need to accept Objectivist epistemology to be a good economist, as shown by Mises and Hayek both (Objectivists without fail accept the Economic Calculation Problem and the Austrian Business Cycle theory).

I attended the TAS/FreeMinds2010 conference in July in Washington D,C. David Kelley gave a presentation on differences (and similarities) between Rand's and Hayak's theories of knowledge. As I recall, the lecture was a straight forward presentation and did not have a polemical tone. There was no "bashing" of Hayek. Kelley also had presented a talk with the same title earlier in the year for the Mont Pelerin Society at their conference in (I think) Guatemala.

I shall consult my notes to see if I have enough information to give here a brief summary of Kelley's main points.

BTW, Sciabarra in his book on Rand, while noting that there are important differences between Rand and Popper, also adds that some scholars have noted similarities between them on a number of important concepts.

[studiodekadent]

Jerry,

Thanks for the information. I'm glad the tone wasn't polemical... as I see it, Hayek's critique of constructivist rationalism is completely consistent with Objectivism, irrespective of whether or not one agrees with Hayek's epistemology.

However, I saw an abstract of Kelley's talk here: http://www.stephenhicks.org/tag/david-kelley/

I have one problem with the abstract...

At a deeper level, however, Rand and Hayek differ profoundly about the nature of culture and cultural change. Rand holds that cultural practices rest on ideas that are the product of reason and open to rational assessment. Hayek offers an evolutionary account in which ideas as well as practices are acquired by imitation and spread by a kind of natural selection.

This seems to imply a view that Hayek believes one should never question traditional ideas... I disagree greatly. Hayek's view of cultural evolution was that it was individuals that have to test an idea or tradition for efficacy. Hayek argued that if individuals didn't believe the tradition had value, the tradition would begin to die and get replaced. I think Hayek would agree with the idea that an unquestioning devotion to tradition as sacrosanct is just as dangerous as an unquestioning neophilia.

There is no necessary contradiction between "traditions should not be uncritically accepted" and "traditions have survived the test of time because other people found said tradition to have at least some value in some way." Evolutionary processes involve three mechanisms; variation, replication and selection. Rand focused on variation and selection; the man that introduces a new idea (variation) and rationally/empirically assessing ideas and traditions (selection). Hayek focused on replication; how ideas spread and over time (assuming they survive the selection process) become institutions and traditions.

If you want an account of cultural change that incorporates the entire picture, I suggest Kurt Dopfer & Jason Potts' "The General Theory of Economic Evolution" (full disclosure; Potts was my thesis advisor and I'm working with him on an article to be submitted to JARS). It includes the Randian/Schumpeterian/Promethean entrepreneur as the engine of variation, alongside a fully evolutionary picture of ideas spreading throughout populations as individuals trial and adopt them (or ignore them).

[merjet]

I attended David Kelley's lecture at TAS/FreeMinds2010, too. I believe there was some bashing, but it was mild and more implicit than explicit.

While the title was Rand vs. Hayek on Abstraction, the lecture was about more than abstraction. Also, the lecture was only about 35 minutes. So the part about abstraction was very limited. Regarding Hayek on abstraction Kelley relied mainly on an essay "The Primacy of the Abstract." I read that essay. In it Hayek used "abstraction" all or mostly about perception. In contrast Rand used "abstraction" all or mostly about concepts, with percepts taken as given. Kelley did not point that out. Kelley also said a little about categorization. A good deal of what Hayek said about categorization was in perception, whereas Rand said near nothing about perceptual categorization. Also, Kelley wrote quite a bit about perceptual categorization in The Evidence of the Senses, which he did not mention during the lecture.

In short it was to a great extent "comparing apples and oranges."

[DavidMcK]

I'm not too familiar with Schumpeter (though I believe the 'creative destruction' phrase comes from him) but from George's quote above it should be pointed out that from the Objectivist point of view those 'utilitarian' arguments will never win; so his pessimism might have been well founded from his own point of view. This is why Rand is so important; people really don't care that Capitalism has lifted vast numbers of people from a short nasty brutish existence; they only look at the morality of Socialism vs. the (what they perceive as) the immorality of Capitalism. She questioned that ethic and provided a moral basis for Capitalism. Why wasn't she more optimistic then? She thought people were children who would always choose the alleged comfort of altruism with its hold on people who are stronger than most than the kind of person who was less afraid of taking responsibility. I believe there are reasons to be optimistic about the long term prospects of Laissez Faire, but it would take a long article to specify why. Basically I believe people have the capacity to grow, change and learn.

[studiodekadent]

I'm not too familiar with Schumpeter (though I believe the 'creative destruction' phrase comes from him) but from George's quote above it should be pointed out that from the Objectivist point of view those 'utilitarian' arguments will never win; so his pessimism might have been well founded from his own point of view.

You are misinterpreting Schumpeter. He (like Rand) acknowledges and agrees that free markets (which many classical liberals call "capitalism" even if I often prefer to avoid using that term) produce the greatest good for the greatest number (Schumpeter himself, in that quote, isn't claiming that the utilitarian defense is a sufficient one). He's saying that most people won't care about the utilitarian argument; and this point echoes Rand's insistence that utilitarian arguments will not work politically when people are emotionally (and hence subconsciously-philosophically) against the requirements of free markets (i.e. self-interest, individualism, nonconformity).

Although yes, you are correct that the Creative Destruction quote is from Schumpeter.