Tuesday, October 4, 2016

On Economic Calculation and a Model That Supposedly Solves the 'Impenetrable Complexities of Economic Calculation'

My response to an email inquiry from Mabel Fong. My responses are in blue-RW

Dear Mr. Wenzel,

I am writing an article on the economic calculation debate as it might be viewed in light of this recent paper published by EcoMod.

I hope you might be good enough to provide some commentary on this development from a Misean and Libertarian perspective. A response via some sort of web post would perhaps benefit us both: I would have a citable source, and you would not be misquoted or misrepresented.

The EcoMod paper apparently summarizes findings presented in an online e-book. A glance at this URL presents some critical output from the freely downloadable desktop prototype referenced by the EcoMod paper. Their claim is that the supposedly impenetrable complexities of economic calculation have been comprehended in an algorithm that features internally-computed efficient prices.

I am especially interested in responses to the following questions/observations:
·         Do you accept EcoMod as populated by mathematically competent and well-regarded scholars who are unlikely to be taken-in by a fraud?

I have no idea who the individuals are that are involved with EcoMod but if they believe they have an algorithm that solves all economic calculations then they are way off.

·         Is the Austrian premise of economic non-computability open to falsification by counterexample?

No, see chapter one of Human Action by Ludwig von Mises.

·         If falsification by counterexample is not allowed, has this not placed Austrian economics outside (or somehow beyond) strictly Western science by rejecting its “principle of contradiction”?

I would think the opposite that rejection of logical deductions based upon fundamental observations would be non-scientific.

·         How might this relate to the Libertarian reverence for the scientific method and the openness to evidence?

Libertarianism is a political philosophy that should not be confused with the study of human action. If any libertarian rejects logic, then he is wrong in that area but he could still be a libertarian.
·         Do you consider Hayek’s 1945 statement of the calculation problem to be authoritative?
“The conditions which the solution of this optimum problem must satisfy have been fully worked out and can be stated best in mathematical form: put at their briefest, they are that the marginal rates of substitution between any two commodities or factors must be the same in all their different uses.”

Not at all, just the opposite. 

What is most important is what he said before the sentence you quote (emphasis in original):
If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic. That is, the answer to the question of what is the best use of the available means is implicit in our assumptions. 
He then goes on to refute the possibility of reaching the solution to the optimum problem that he states and you quote, and says it is not the economic problem to be solved.
 This, however, is emphatically not the economic problem which society faces. And the economic calculus which we have developed to solve this logical problem, though an important step toward the solution of the economic problem of society, does not yet provide an answer to it. The reason for this is that the "data" from which the economic calculus starts are never for the whole society "given" to a single mind which could work out the implications and can never be so given.
    
 Does the EcoMod presentation solve the calculation problem as defined by Hayek?

No. It is impossible to do so. 

·         If EcoMod’s prototype does not instantiate a counterexample to economic non-computability, what might such a counterexample look like?

In the field of social sciences, nothing other than a refutation of poor logic.

·         Would not a solved calculation problem fulfill, rather than falsify, the Austrian School?
Here I note that Lew Rockwell has cited Mises himself as saying that he would prefer to have free markets’ ability to produce optimal economic conditions expressed in a rational model, rather than presented as necessarily ‘mysterious’ of ‘miraculous’.

I believe Mises and Rockwell are discussing the method by which the argument for a free market is presented rather than arguing for a computational model. That is, for example, discussing supply and demand and competition rather than "the invisible hand."

·         Would not a solved calculation problem enhance Austrian policy assertions by essentially installing marginalist causality in instructional videogames for the classroom?
Here I note that marginalist causation is shown by EcoMod to be resolved in a mathematically determinant system – which is a primary test of validity that no Keynesian system can pass.

You are failing to take into account the key Misesian and Hayekian observation that all data can not be known to one person at one time. It contradicts the notion of purposeful human action. There are no such models.

·         Accepting that a solved calculation problem could be the mathematical enabler of command socialism, why could it not just as easily be used to extol the benefits of free markets to a population desirous of personal liberty? If liberty is our shared imperative, then should we not provide for the self-interested disposition of private property even if it were not efficient?

It is not a case of rejecting or employing a model that has solved all calculations but the fact that such a model can't exist.  

Thank you for your time and attention.

4 comments:

  1. Even if such a mathematical calculation that factored all resources, all desires, all implementations exactly as people have them in real time could exist, would it not just land people exactly where they otherwise would have been in a free society? If it wouldn't land society there, then it would again be creating artificial outcomes at a variance to human actions and desires which would then invalidate it as a system that accounts for all variables, making it a waste of time either way.

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    1. Great point. And it's almost laughable to think a system controlled by a few wouldn't be abused, let alone come up with the "correct" calculations. You have to start with the assumption that individual preferences don't matter. Are these people going to tell me that, in a scenario where there's a large hurricane, the prices of generators will be allowed to rise? Who will be constantly doing the calculations to determine at what price point it's better to use new materials like carbon fiber in certain production methods? With all prices "calculated", isn't profit also predetermined, and if so, what incentive exists to look for these types of improvements?

      I haven't seen this model, but I really can't see how it would work. It would end in a completely top-down (and failed) model.

      Btw, I found this other article by the same author:

      "Aryan Insights: Kurt Roemer – National Socialist Economics for the Modern World"

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    2. I agree. RW does a nice job but it is apparently human nature to continue the fruitless search for a perpetual motion machine.

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  2. ─ Do you accept EcoMod as populated by mathematically competent and well-regarded scholars who are unlikely to be taken-in by a fraud? ─

    The first thing the person posits right off the bat is that these scholars are perfect beings, something that is implied in his claim that they're "unlikely to be taken-in by a fraud". That is indeed a goofy way of starting a conversation.

    ─ Is the Austrian premise of economic non-computability open to falsification by counterexample? ─

    I would, instead, posit that it is open to falsification by counterexample, provided the counterexample is also an economy where all trade networks can function absolutely without market signals, which is what is being implied by the claim that economic decisions can be simulated by an algorithm.

    ─ Accepting that a solved calculation problem could be the mathematical enabler of command socialism, why could it not just as easily be used to extol the benefits of free markets to a population desirous of personal liberty? ─

    Why bother? It is much easier just to leave people alone than to tell them what they have known already throughout human existence. This insistence on mathematically proving that markets follow constants is tedious.

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