a, b, and c have all been incorporated into the neoclassical framework (especially Hayekian uncertainty) and several of the information problems (stock/flow) associated with socialism have been solved by Stiglitz and Krugman and Coase back when they were economists.

d) has not yet been incorporated into the neoclassical framework in a systematic way. although a lot of the Walrasian equilibrium work that contradicts has been revised thoroughly to account for it. so yeah, d) is definitely a unique and POTENTIALLY useful Austrian prediction.

e) is not a unique prediction.

f) is very similar to other points made on certainty and true but not unique.

Mainstream economics assumes that there is a well defined price. What if there isn’t? For example, right now talking about the market price of a sub-prime mortgage makes no sense. That goes with most economic objects. What is the price of a used car? What is the value of Exxon-Mobil? It *isn’t* a well defined quantity and I think treating it as if it is will lead to some sort of problem or contradiction. What that problem will be, I have no clue right now, but I think that Austrian economics says that there will be some major problem that no one has thought of yet is a testable prediction.

Also related to calculation. The fact that people who deal with private equity talk human relationships and don’t use quantitative methods to allocate, I think can be explained in terms of Austrian concepts and are not amenable to mainstream economists. The observable fact that large companies are just plain bad at entrepreneurship I think is something that you can apply Austrian concepts toward that you just can’t with neo-classical approaches.

I strongly suspect that there are mathematical connections between implied volatility, trade volume, forward curve prices, and implied volatility curve prices that can be derived from Austrian principles. The thing about derivative markets is that here you can use mathematics in a way that I think is acceptable to the Austrian framework.

If you ask “what is the utility function of this derivative” that is talking about something that is abstract and unknowable. If you ask “what are people willing to pay me for this complex derivative” that brings in numbers and mathematics in a “non-bogus” way. The interesting thing about utility-function based models of derivative pricing is that they’ve published a whole bunch of papers, but none of that is useful in any real world situation, and I suspect that is because the economic theory behind these approaches is flawed.

You can theoretically talk about the “utility function” of an indvidual, but it makes absolutely no sense to talk about the “utility function” of a market. Also, I strongly suspect, that even talking about the “utility function” of an individual will lend to some self-inconsistencies that can be illustrated with a derivatives market.

This comes from the question if “socialist calcuation works fine in firms” why wouldn’t it work fine in entire economies, and the answer is that the calculation problem in economies is much larger than in firms. This suggests that there is a “natural size” for a firm at which calculation becomes prohibitive. This is somewhat like the Coasian argument regarding transaction costs, but it is different since the focus is on information processing ability rather than on transaction costs.

My view is that if you are talking about ‘transaction costs” you’ve already lost the argument, since talking about “transaction costs” implies that you have something that is quantifiable, and if you assume that “transaction costs” are knowable then I think you’ve undermined the socialist calcuation position that the problem is that you can’t calculate “costs.” Uncertainty is a quantity that exists independent of an economic framework.

Also what exactly is a “firm.” The working definition that I have is that a “firm” is a bank account, which is where matters of corporate law come into play.

One “sales and marketing” question is what do we define as “Austrian” and for that matter what do we define as “socialism.” I think of myself as Austrian even though I doubt Murray Rothbard would agree with most of my beliefs.

If the essential problem with socialist systems is calcuation, then a government owned system in which the institutions have been set up so that these calculations can be performed in a real market (and not an Oskar Lange pseudo-market) will work.

That’s the system currently in place in China, and Chinese economic reform can be seen in the context of creating a real market to resolve the socialist calculation problem in the context of public ownership. A lot of this works because there aren’t vertical command and control systems, which means that actual decisions are taking place at a lower level.

Also there is a fundamental tension between prediction and human freedom. If something is predictable than that means that you don’t have the freedom to change it, whereas if you to have the freedom to change something that renders it less predictable.

Let me rephrase and add to what I was trying to say: which is that the socialist calculation debate illustrates in miniature what I think will happen to Austrian approaches generally. Neoclassical economics was wedded to models that made transaction costs out to be always zero or infinity. Oskar Lange’s position in the calculation debate was essentially that the cost of transactions between the central planning board and the citizens could not be infinite, so it must be zero, and if it was zero then socialism would have to do as well or better than the market. The Austrian position was essentially that transaction costs between the central planning board and the citizens must be higher than under those between decision-makers in the market, and Hayek’s papers on the economy of information transmission through the price system, the economy of use of local knowledge specific to time and place under decentralized decision-making, etc., all were designed to illustrate specific transaction costs that were economized in market economies compared to socialist economies.

However, Hayek did not build an analytical framework that could be extended by others. That project was initiated by Coase, who developed the transaction cost idea in direct response to the socialist calculation debate – especially the socialist response that the state under communism/socialism would just be a big firm, and economic calculation worked fine in firms. However, Coase was formalizing an idea that was already pregnant in Hayek. And people who have extended Coase’s idea do not consider themselves “Austrian.” Coase and others were inspired by Austrians, but did not necessarily build explicitly on them. I think that will continue to be true in the future.

As for your questioner, it was a fair question I think, but one that could be turned equally well on others. What did Samuelson predict? Among other things, that the Soviet Union would surpass the United States in GDP. I would rather have the Austrian prediction portfolio, which if limited in number at least has been largely proven correct. A more important question may be: which tradition best facilitates progress. By that standard also, I think the Austrians will stand up well in the eyes of history, but there’s a good chance it will be Austrian-influenced original thinkers like Coase rather than more traditional Austrians who bring the discipline forward.