What did Mises really think about the use of mathematical economics in developing economic theory? Check this out from Memoirs (p. 45)

Throughout my book [The Theory of Money and Credit] I use the “step-by-step” method, a method being rediscovered today under the designations period analysis or process analysis. It is the only acceptable method. It renders the argument between short-run and long-run economics superfluous, and even the distinction between statics and dynamics becomes dispensable. If no condition is considered “normal”—if one is aware that the idea of “static equilibrium” has nothing to do with the life and action we study and is merely a mental image that is used in order to conceptualize human action through a state of nonaction—then one must recognize that it is always motion we are studying, but never a state of equilibrium. All of mathematical economics, with its beautiful curves and equations, is idle flirtation. The setting up of equations and the drawing of curves must be preceded by nonmathematical considerations; the setting up of equations does not broaden our understanding. Mechanical equations can be used to solve practical problems through the introduction of empirically acquired constants and data; but equations of mathematical catallactics cannot in the same way be of service to practical problems in the area of human action where constant relations do not exist.

In my book on money I made no use of polemics directed against the mathematical school. I presented the correct doctrine and refrained from attacking the method of mathematicians. I even withstood the temptation to unravel the vacuous term “velocity.” The death knell for mathematical economics was sounded when I proved that the money supply and spending power of the monetary unit are not inversely proportional. The proof demonstrated that the only constant relationship that was believed to have been found between “economic quantities” is in fact a variable determined by the data in each individual case. It also rendered Irving Fisher and Gustav Cassel’s equations of exchange obsolete.

This quote not only destroys mathematical economics, but also the concepts of the "velocity" of money and the "equation of exchange".

ReplyDeleteI can not understand the need of the GMU crowd to call themselves Austrian, all-the-while promoting ideas such as mathematical economics, the velocity of money and the equation of exchange. If the GMU crowd rejects the methodology, analysis and conclusions of Mises, and therefore of Menger, what exactly is Austrian about them? Their methodology, analysis and conclusions seem to fit much more tightly with either the Keynesians or Monetarists.

I recall a commenter a few weeks ago snarking that many of EPJ readers don't have PhDs in Econ but since we've read Mises and Rothbard we imagine that we're PhD material. (His implication being that we're just ignorant knowitalls.)

ReplyDeleteIt wasn't Jerry Wolfgang or Gil. Some other jackass. No matter.

A lot of us can do the math. I'm finishing up a doctor of engineering degree. I "can't" do math??? I can and like it--if and only if it serves a real purpose. We can easily build models predicting the spread of an oil spill, but models to predict the choices of 7 billion individuals as an "aggregate"? Morons. Mathematical economists simply don't understand that they are abusing math, and that by abusing math they are abusing economics. The fact that there is no PhD in the philosophy of economics shows that economists are not interested in ideas but in mathematical contortionism. They are not only detached from reality, but devoid of content. I'd say completely devoid of morals, too.