Austrianism contains a variety of flaws

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britainland replied on Fri, Mar 20 2009 1:55 PM

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ViennaSausage:

confusing ordinality and cardinality in its definition of utility/preferences;

He's going to have to provide an example, because it seems to me that Austrians have been quite explicit in defining preferences are purely ordinal. Rothbard, for example, states:

"Actors can be interpreted as ranking their ends along a scale of values, or scale of preferences. ... It is important to realize that there is never any possibility of measuring increases or decreases in happiness or satisfaction. ... In order for any measure­ment to be possible, there must be an eternally fixed and objec­tively given unit with which other units may be compared. There is no such objective unit in the field of human valuation. The in­dividual must determine subjectively for himself whether he is better or worse off as a result of any change. His preference can only be expressed in terms of simple choice, or rank. Thus, he can say, “I am better off” or “I am happier” because he went to a concert instead of playing bridge (or “I will be better off” for going to the concert), but it would be completely meaningless for him to try to assign units to his preference and say, “I am two and a half times happier because of this choice than I would have been play­ing bridge.” Two and a half times what? There is no possible unit of happiness that can be used for purposes of comparison and, hence, of addition or multiplication. Thus, values cannot be measured; values or utilities cannot be added, subtracted, or mul­tiplied. They can only be ranked as better or worse. A man may know that he is or will be happier or less happy, but not by “how much,” not by a measurable quantity."

That is quite definitive. In practice, Austrians hold firmly to this view; note, for example, Rothbard's theory of prices, which is based entirely on ordinality. Indeed, Rothbard goes on to criticise the neoclassical theory of marginal utility for conflating ordinality and cardinality:

"s we have just seen that the marginal utilities of the various goods are not equalized. Successive units of a good are allocated to the most desired end, then to the next most desired satisfaction, etc. If there are several uses for the good, each one involving many possible units, the marginal utility of a unit in each use continues to decline as the supply increases. As goods are purchased, the marginal utility of each good purchased diminishes, and a man may allocate his money first to one use, then to another, and then to the first use again. However, in no case is there any equaliza­tion of marginal utilities. ... The chief errors [in the neoclassical model] consist in conceiving utility as a certain quantity, a definite function of an increment in the commodity, and in treating the problem in terms of infinitely small steps. Both procedures are fallacious. Utilities are not quantities, but ranks, and the successive amounts of a commodity that are used are always discrete units, not infinitely small ones. If the units are discrete, then the rank of each unit differs from that of every other, and there can be no equalization."

ViennaSausage:

using unfounded postulates as the basis for rejection of public goods and the possibility of intervention leading to Pareto-superior outcomes;

The Austrian rejection of "public goods" and the possibility of intervention leading to "Pareto-superior outcomes" is rooted in the view that preferences are ordinal. Either this critic believes utility is cardinal, or he has, himself, fallen into the trap of confusing ordinality and cardinality. Rothbard notes:

"[T]he criterion of 'Pareto optimality' [is] that a political policy is 'good' if one or more people are 'better off' (in terms of satisfying utilities) from that policy while no one is 'worse off.' ... [It] assumes that it is conceptually possible to add and subtract utilities interpersonally, and thereby to measure gains and losses; it also assumes that each individual’s gains and losses can be precisely estimated. But economics informs us that “utility,” and hence gains and losses in utility, are purely subjective and psychic concepts, and that they cannot possibly be measured or even estimated by outside observers. Gains and losses in utility therefore cannot be added, measured, or weighted against each other, and much less can precise compensations be discovered."

ViennaSausage:

failing to recognize that even hard money depends on the credibility of the issuing authority and the willingness of others to accept it;

This is absurd. Here is a direct quote from Rothbard:

"How would private coinage work. In the same way, we have said, as any other business. Each minter would produce whatever size or shape of coin is most pleasing to his customers. ... People would use the coins of those minters with the best reputation for good quality of product."

ViennaSausage:

which, like the Treasury view, denies the possibility of idle (financial) capital, in spite of the observable fact that sometimes capital is idle

Austrians don't deny the possibility of "idle" money; they do consider the definition of what is "idle" to be arbitrary, though. Rothbard writes:

"Money is only useful for exchange value, true, but it is not only useful at the actual moment of exchange. This truth has been often overlooked. Money is just as useful when lying "idle" in somebody's cash balance, even in a miser's "hoard." ... At what point does a man's cash balance become a faintly disreputable "hoard," or the prudent man a miser? It is impossible to fix any definite criterion: generally, the charge of "hoarding" means that A is keeping more cash than B thinks is appropriate for A. ... For that money is being held now in wait for possible future exchange--it supplies to its owner, right now, the usefulness of permitting exchanges at any time--present or future--the owner might desire.

ViennaSausage:

ignores the possibility that prices and wages may suffer downward rigidity

Wrong again. I don't think Austrians have ever claimed that prices can't be rigid; does he have a quote?