I’ve been reading Nassim Taleb’s bestselling Fooled by Randomness. I think Austrians would really like this book. (Elsewhere Taleb has favorable things to say of Hayek.) Here’s his take on (mainstream) economics:
What has gone with the development of economics as a science? Answer: There was a bunch of intelligent people who felt compelled to use mathematics just to tell themselves that they were rigorous in their thinking, that theirs was a science. Someone in a great rush decided to introduce mathematical modeling techniques (culprits: Leon Walras, Gerard Debreu, Paul Samuelson) without considering the fact that either the class of mathematics they were using was too restrictive for the class of problems they were dealing with, or that perhaps they should be aware that the precision of the language of mathematics could lead people to believe that they had solutions when in fact they had none…Indeed the mathematics they dealt with did not work in the real world, possibly because we needed richer classes of processes–and they refused to accept the fact that no mathematics at all was probably better. (p. 177)
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I thought “Fooled by Randomness” was an excellent book, and highly conducive to Austrian thinking: it’s deeply subjectivist and treats uncertainty seriously. I picked out 33 points that I found especially revealing on my blog, but I highly recommend the whole book for any Austrian
This is a reminder that most people think of economics in the same light as physics or chemistry. In reality, though, trying to interpret real life economics is closer to trying to interpret the fuzzy science of pyschology.
Gerard Debreu was my mathematical economics professor in UC Berkeley. I owe him a lot for his teaching and for his willingness to write me a letter of recomendation for graduate school. Professor Debreu had a unique style of teaching. He often started with assumptions (very weak in the sense that they are general and unrestrictive) and from there he derived important results. That was the axiomatic approach that he had been preaching throughout his career. Honestly, I cannot recall him talked about even one real economic problem at any point in his lectures. It was purely a math class. His approach was always general and abstract. I suppose he left the interpretation of day to day economic problems to applied economists. I think he considered himself as a pure theorist. Even when he was interviewed by reporters on the day that he won the 1983 Nobel Prize in economics, he would not comment on Reagan’s economic policy. Professor Debreu was definitely an important figure in bringing economics as a science. Is that a bad thing? I don’t know! Maybe only time will tell.
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