Austrian Economics Newsletter
An Interview with Leland B. YeagerTags BiographiesMoney and BanksMonetary TheoryMoney and Banking
Volume 12, Number 3 (Summer 1991)
AEN: Throughout your career as an economist, you have shown interest in social ethics.
YEAGER: I don't see anything peculiar about economists being interested in ethics. The two fields overlap. Both are concerned with how people can function together in society without central direction. Somehow, they pursue their own interests and serve those of others at the same time.
AEN: And your interest is utilitarianism.
YEAGER: That's right. Among many classical liberals, utilitarianism is considered a bad word. But I don't think many understand what it means. There are different varieties of utilitarianism. Mises and Hazlitt, both utilitarians, are on the same wave length, as was David Hume, who inspired F.A. Hayek.
Remember that no sensible version of utilitarianism makes interpersonal comparisons of utility. Hume, Mises, Hazlitt, and Hayek did not engage in interpersonal comparisons of utility.
Bentham, I suppose, wrote as if he imagined that it were possible. The same can be said of the mathematical psychics of Edgeworth. He seem to conceive--either as an expository device or even seriously--of the possibility by drawing up his aggregate utility functions as if it were possible.
AEN: But how can utilitarianism protect the minority against the majority?
YEAGER: It is a standard caricature that it cannot. Murray Rothbard takes this position all the time. But if we go back to Chapter 5 in Mill, the one dealing with justice, we find that justice is a name for that set of rules and principles that would guide our institutions and behavior which are of utmost importance toward human happiness. If we set aside justice to give a thrill to Rothbard's majority--the people who get their kicks from torturing red heads--then we are setting aside rules and principles that are important for a decent society and therefore to human happiness.
But this notion of overriding minority rights for the sack of amusement of the majority is a caricature version of utilitarianism. Respect for minority rights is essential to a decent society. Any reasonable version of utilitarianism takes a longer view, considering how a good society can be sustained. It is not concerned with the pleasures of the moment.
In my pessimistic moments, I decide not to write anything more about this since Hazlitt has already said everything.
AEN: What's wrong with natural rights theory?
YEAGER: Nothing. I consider myself a consistent champion of the kind of rights that are mentioned in the Declaration of Independence and the Bill of Rights. But it is wrong to start with some conception of rights and then try to derive everything from that. The importance of respecting human rights is a result of our coming to realize how important they are to a good society and human cooperation.
I get the impression from libertarian rights theorists--like Tibor Machan--that they want to just posit human rights. The good guys see them, the bad guys don't, and that's that. They must think it somehow demeaning to human rights to argue for them.
My objection to rights theory--as it is presented by those who want to distinguish themselves from utilitarianism--is the basis on which they enunciate rights. Rothbard's rights are peculiar for being so narrow--body and property--but most "rights" just amount to claims without obligations.
Furthermore, to invoke rights in a discussion is to use heavy artillery that is contrary to the peaceful discourse. A rights advocate will says, morality requires that my policy be adhered to and anybody who disagrees or denies the rights that I have announced is an enemy of morality. And that's the end of discussion. This is not scholarship at its best.
AEN: But you want to hold on to a notion of rights.
YEAGER: Not as the starting point, but as concepts that arise within the field of ethics. The following definition of rights works in practically all contexts in which the word is used:
Rights are entitlements to behavior on the part of others which are binding with a particularly strong degree of moral force.
Rights to life, liberty, and property means that it is particularly binding on others that they do not invade our own lives, bodies, and freedom.
AEN: But in popular discussion, the terms "rights" is most often used to mean the opposite of your definition.
YEAGER: True. Civil rights are valid, but people try to sell contrary policies under its name. The so-called civil rights bill, which increases opportunities for anybody who has a grievance to sue the employer, is a bad idea. It's disingenuous to deny that such bills are not important in setting up de facto quotas. If the best way to protect yourself from suits is to have the statistically correct mixed of groups, you're being prodded to do it that way.
Many good intentions are vaguely written into the law only bring opportunities for nasty and litigious types to exploit the law in other ways.
AEN: Do you wish more economists were interested in ethics?
YEAGER: We can't expect all economists to be interested in the same things. But the tradition of economists interested in ethics goes way back and carries up to the present. Smith, Hume, Mill, Keynes, Mises, Hayek all were. And ethics does indeed seem to be becoming more important to economics discussion these days. The typical economic journal does not deal with the subject, since it is supposed to be on the frontiers and cannot be concerned with the great bulk of accepted doctrine.
AEN: What role has the mathematization of the profession had in pushing aside ethical discussion?
YEAGER: It has played a role in pushing aside the overlaps between economics and ethics, because it isn't too obvious how one puts ethics into equations. But I don't want to condemn mathematics, since doing so would be engaging in a particular type of methodology. I don't much admire laying down methodological taboos, telling your colleagues the right way to go about things.
AEN: Are you uncomfortable with Mises's views on the use of mathematics, that they have a limited use in doing history but not in economic theory?
YEAGER: I have always been a bit dismayed at Mises's a stern line against mathematics in economics. How can one be so far sighted to see that nothing good can come out of the application of mathematics to economics?
In general, I think people ought to be more modest in their methodological sermonizing. Just because one theorists doesn't apply certain methods doesn't mean they should be taboo.
Mathematics can be a good way of conveying some ideas. With some concepts, you have to keep hammering at them to get them across to your students. The idea of maximizing utility under constraints should be done with words, graphs, and mathematics.
Three ways are always better than one. To really understand these topics, you've got to go over them several times while using a variety of techniques. That the basis of my forthcoming article, "The Curse of Methodology."
AEN: You speak about Austrian taboos, but aren't there taboos in the mainstream?
YEAGER: There are plenty of methodological taboos which are never even discussed. And sometimes the tacit methodologizing is even worse than the explicit methodologizing. If people are explicit, they are laying out their message for inspection. An implicit assumption of the mainstream is that if economic reasoning is to be rigorous, it must present a formal model cast in the form of maximization of utility, profit, or present value.
AEN: Is any particular school guilty of this?
YEAGER: The New Classicists are my particular bugabear. They are always telling us that we must suppose that markets are always clearing, that we've got to interpret the business cycle as if markets are always clearing, that we've got to see unemployment as voluntary withholding of labor from the market. But this notion that all markets are clearing, or are close enough to clearing so that we are required to do our reasoning as if they were clearing, has no more merit than a methodology which hardly gets explicitly discussed.
I am skeptical about all such postulates. The postulates which are legitimate depend on what you are studying. For example, if you are doing an exercise in microeconomics to find the long-run equilibrium consequences on the price and output of a product because of a specified tax or change in technology, then it only clutters up the argument to focus on the transition from the present state of affairs to the future equilibrium state of affairs. We have no particular reason to be interested in the disequilibrated markets before prices have fully adjusted. The proper question is: what is the tendency of the specified change in the data.
But if we are doing macroeconomics--which is concerned with lapses from full coordination, and what accounts for the greater or lesser degree of full coordination in the economy--then these transitional obstacles are the center of the topic. What might be merely a fringe complication set aside in a micro analysis are moved to the very center when we are doing macroeconomics. Yet New Classical economists dismisses all concerns with lapses of coordination and the failure of market so clear completely. It simply wipes away the problem.
AEN: Are you, then, a methodological pragmatist?
YEAGER: I am a methodological libertine. I am not saying that anything goes, or that whatever one comes up with is automatically valid. Divine inspiration is not as good as looking at the facts. But let people work with whatever method works for them, and fits with their talents and inclinations. After all, their work is open for public inspection.
AEN: Donald McCloskey has been persuasive in this regard. What do you think of his work?
YEAGER: I agree with him at many points when he is speaking independently. I really haven't read some of the people that he cites--those associated with deconstructionism and hermeneutics--but I am not too impressed with them.
Hermeneutics, of course, was a flash in the pan, but it is an example of what happens quite often in economics. Economists will latch onto an idea out of some other field in hopes of making a splash in your own. They'll dip into engineering, psychology, or mathematics and try to make a reputation. This way they can look catholic and widely read.
AEN: And what of your view toward Shackle and Lachmann, the radical subjectivists?
YEAGER: They advanced of a kind of subjectivism I reject. In short, they advanced nihilism. I know they don't call it that, but that is the way it comes across to me. If the extreme subjectivists like Lachmann and Shackle take themselves seriously--that we cannot know anything about the future, that expectations are subjective, that the future is being freely invented--why would they pose as professors of economics? Why do they set out to do anything? Lachmann was a dear man, but his entire doctrine was negative and trying to pull down economic rationality. But today's students do not waste time on the ideas of the radical subjectivists.
AEN: How do you see your own role in the Austrian school?
YEAGER: I don't know whether I am considered a critic of Austrian economics or not. I have criticized their business cycle theory and the methodological work of Austrians. But I am basically sympathetic to it and have had a long-term respectful interest in the Austrians.
I first came across some books by Mises when I was at Overland College shortly after the war. I believe they were Omnipotent Government and Bureaucracy. I was favorably impressed and learned a lot. In fact, I had the bad judgment of including some of his insights to an answer in a final exam in an anti-trust class. I received a "C" for including Misesian insights where they weren't appropriate.
While I was visiting Princeton library, I read Nationalökonomie before Human Action, the English version, even appeared. I had already read some Hayek material out of Individualism and Economic Order.
But mostly I was very excited about Mises's doctrine of calculation under socialism. I gave a faculty seminar on that topic when I was teaching for one year at Texas A&M in 1949. I even thought about exploring some related topic for my PhD dissertation.
AEN: What themes in Austrian economics do you like?
YEAGER: I like the concern with the big picture. The Austrians have shown how the activities of millions of separate people can be coordinated into a system that has a semblance of logic and structure even without a central planner. And I also like the Austrian tradition's concern with institutions. Unlike the mainstream, which gets bogged down in questions like decision-making in the firm, Austrians are concerned with the relation between interdependent units in the economy.
AEN: And what don't you like?
YEAGER: I am not a card-carrying Austrian. I don't like the way the business cycle theory gets repeated without any new evidence or logic. And on capital theory, I find myself disagreeing with Austrians.
Briefly, my view is that if you put together Boehm-Bawerk, Cassel, and Fisher, and make the proper selection and combination of their doctrines, you have the essence of good capital theory.
That is, the interest rate is determined by an interaction between the productivity of roundaboutness and time preference.
But I don't know why this should be considered anti-Austrian. Boehm-Bawerk and Hayek explicitly recognized both time and productivity as factors in the forming of interest. I cannot quite understand how the pure subjectivist, or pure time preference, theory of interest came to be regarded as a key part of Austrian doctrine. I only have a hunch. Maybe people thought that since subjectivism is good, the more you have the better.
AEN: You don't regard Austrian economics as separate school within economics?
YEAGER: It certainly shouldn't separate itself and take on the mission of doing battle with the mainstream. All of us economists have some idea we hope to contribute to our fellow economists.
The Austrian tradition is distinctive in having a favored set of topics and perhaps a method. But Austrians should be trying to influence the general understanding of how the economy works.
AEN: What can formal Austrian theory add to the body of mainstream thought?
YEAGER: The emphasis on the dispersion of knowledge in society, and the need to organize it through market means, is an important message that needs to be incorporated into the mainstream. And the emphasis on legal institutions and their role in the coordination of economic activity is also a fruitful framework for study.
Hayek often gets credit for this, but one can find a knowledge problem implicit in Mises. The planners don't know how to combine the factors of production, even supposing they know what they want to produce. Mises's emphasis on meaningful markets displays his interest in gathering this knowledge in the price system, a point upon which Hayek elaborated.
AEN: What about the role of entrepreneurship as a unique Austrian contribution?
YEAGER: It does need to be hammered home, but I think by now the mainstream has got the message. If we can find an economist who hasn't got it, then Austrians should continue. The problem is that entrepreneurship is an idea that is difficult to model. So working in this area doesn't provide much opportunity to demonstrate technical ability. That may be why it doesn't show up as much as it should.
I do think that there has been too much discussion about whether entrepreneurship is equilibrating or disequilibrating. It is clearly both.
AEN: Any thoughts on the anti-socialist revolution in Eastern Europe?
YEAGER: Sure. It overwhelmingly demonstrates that economies that try to be centrally directed do not work. It was a very decisive experiment. The advocates of socialism will no longer come from the ranks of the economists. It is no longer intellectually respectable.
AEN: But it doesn't necessarily follow that just because totalitarian socialism fell, free markets will take their place. We could end up with lots of little social democracies.
YEAGER: But the only option to socialism is markets. Those are the only two models around. There are no other methods of economic coordination out there. Social democracy just means a heavy welfare state, but Swedish-type economies are essentially capitalist economies. It is not a third type.
There is, of course, a question of how far one can go with taxation before one ruins the economy, and I don't know the answer. But social democracy still qualifies as a market. I don't think we are faced with an all or nothing choice about laissez-faire economics.
AEN: When can we criticize the interventionism of a social democracy?
YEAGER: When it impairs incentives to produce. How much intervention we can have without hurting incentives is a subject for more research.