Milton Friedman: Patron Saint of Blogging?

21 February 2007 at 8:44 am 5 comments

| Peter Klein |

Left to the free market of ideas and instant reader feedback, good writing, quality and reliability in blogging secures a readership and reputation solely on merit. The analogy to “democracy” may be clichéd but the blogosphere is a prime example of Milton Friedman’s credo (“Capitalism and Freedom”) that minimal (or no) regulation and state licensing are best; they are too often a pretext to shut down competition not protect the populace. — Jens F. Laurson and George A. Pieler

I appreciate the sentiment, but am not sure why Friedman deserves the honor. I suspect most bloggers would take Hayek instead (1, 2). (This cynic offers a slightly different take.)

Entry filed under: - Klein -, Classical Liberalism, Institutions. Tags: .

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5 Comments Add your own

  • 1. Kevin Carson  |  28 February 2007 at 2:06 am

    I especially enjoyed your exchange with Max Chiz.

    On the issue of “engineering value,” I’m not sure that he was disputing the Misesian distinction in theory between technical and entrepreneurial judgment. In arguing that engineers took cost into account, he was questioning the extent to which the functions were separated in practice. I suspect that the functions are separated–stovepiped–to an extent far beyond what would be found optimal in a free market.

    On the law of costs, and Austrians vs. Ricardians, my own take is that Bohm-Bawerk’s theory was far less revolutionary than purported, and far less of a departure from classical political economy, when certain things are taken into account. The Austrian paradigm (as Buchanan said) treats supply as fixed at the point of exchange, and thus applies the classical PE paradigm for goods with inelastic supplies to all goods. The claim that utility, rather than cost, determines value relies on a technical and idiosyncratic definition of utility, based on the same assumption of fixed supply at the point of exchange.

    When language is taken in its ordinary sense, and supply is treated as a dynamic factor that changes in response to price, the Austrians are simply using a different vocabulary to restate Ricardo: although at any moment price is determined by marginal utility given the snapshot of supply and demand at the point of exchange, if supply is elastic and market entry is free supply will adjust toward a point at which the utility of the last unit produced equals the cost of production. I’m pretty sure Weiser actually stated it in similar terms, although my memory of him is rustier than of B-B.

  • 2. Peter Klein  |  28 February 2007 at 5:04 pm

    Kevin, I don’t agree at all that the Austrian approach to value and price applies only at the moment of exchange. On the contrary, the dynamic, temporal process of entrepreneurs competing to combine factors of production in the most profitable manner is, in the Austrian understanding, driven entirely by subjective value. Under the conditions you specify, and using your terminology, in long-run equilibrium the utility of the last good produced equals its cost of production only if “cost” is understood as opportunity cost, i.e., as the forgone utility from employing that good (technically speaking, a marginal unit of that good) to satisfy an alternative consumer want. To the Austrians there is no such thing as “real cost,” in the Ricardian sense, apart from opportunity cost.

  • 3. Kevin Carson  |  2 March 2007 at 2:25 am

    It’s turtles all the way down, though. Opportunity cost itself is not really subjective. It is determined by the returns to assets in alternative uses, which may reflect economic rents that are the result of artificial scarcity–privilege, in other words. At the same time, labor is a big exception to your opportunity cost generalization, because of its unique quality of disutility. Put these things together, and you get something like James Buchanan’s use of opportunity cost as the *mechanism* by which Adam Smith’s beaver and deer exchange at the ratio of their embodied labor

  • 4. Peter Klein  |  2 March 2007 at 9:31 am

    Not at all. The returns to assets in alternative uses, in the Austrian understanding, are themselves completely subjective. Absent consumer preference, there are no rents to be earned, regardless of the degree of “artificial scarcity.” Subjective utility is both necessary and sufficient to explain economic value, and hence opportunity cost. For the Austrians, there’s one big turtle at the bottom of the stack, and that’s the consumer’s preference ordering.

    Of course, one might ask where this ordering comes from, but to the Austrians, that question lies beyond the scope of economic analysis (our sociologically minded friends would disagree, naturally).

  • 5. Kevin Carson  |  12 March 2007 at 3:02 pm

    Given that returns are in a fungible medium, though, and can be compared in cardinal terms, money prices and money returns act as feedback in the way that essentially duplicates what the classical political economists said about the law of costs.

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