Quelle Merde

I will not be surprised if my translations are bad. Some Austrian fanboys brought up my name in comments on a blog in French:

"You would like me to say, where you can find the same criticism as put forward by Hazlitt? Well, not to my knowledge. Where Keynes Went Wrong, by Hunter Lewis mentions Hazlitt several times, but I haven’t read the book. (Minarchiste, he’s read it.)

About Hazlitt, I do not know of many critiques of his book. The only one that I know, and that seems to be frequently cited (at least, on my voyages on blogs in the U.S.) is that of Robert Vienneau. I am just going to read it. He (Vienneau) says that Hazlitt did not know anything of the theory that he defends, nor does he understand Keynes in his book containing his landmark criticism."

-- Meng Hu, 11 April 2012 at 20:41.

A thank you follows:

"(Thank you for your link to ’robertvienneau’)..."

-- Baraglioul, 11 April 2012 at 21:40.

An attempt at a substantial comment follows:

"As for me, I did not understand where Vienneau was coming from. When he says:

’Obviously, then, the equality of the wage and the marginal productivity of labor is not enough to determine either wages or employment. ’

He continues saying that the adjustment of wages to productivity does not determine employment or wages. I thought that as productivity increases, so does the wage, and that a wage higher than productivity leads to unemployment. Thus, he has a need to review the foundations, or he is intellectually dishonest.

Then, he continues:

’In neoclassical theory, this schedule "is the wage-rate that employers are willing to offer workers" at each level of employment within the possible range of levels. The "first postulate" can, at best, determine the schedule, but not the location at which the labor market is in equilibrium.’

Again, it seems to me that he has strayed completely. Hazlitt was entirely correct. The fact is that the first postulate (’The wage equals the marginal productivity of labor’) indicates precisely the spot where the labor market is in equilibrium. Why? Because as Hazlitt himself explains (and cited elsewhere by Vienneau, ironically) the increase in marginal productivity, in line with the wage rate, leads to the reduction in what Keynes calls the marginal disutility of work.

Finally, earlier he wrote:

’Keynes’ qualifications are obviously getting at imperfections of competition. For example, if the firm is a monopolist in the product market, the wage, when the firm is in equilibrium, is equal to the marginal value product of labor, not the value of the marginal product of labor.’

I wonder again at what he does not express. Why build his reasoning from a hypothesis of a monopoly situation? What monopoly? How? Why? In principle, markets (really free) lead to neither monopoly nor sustainable cartels. In fact, according to Keynesian logic, the market is always failing, and they base their reasoning on this failure, without at first explaining why or how it fails. ’The market fails because human nature is also’ unbalanced. In short, a dogma."

-- Meng Hu, 12 April 2012 at 00:25.

Another commenter tries to say something substantial:

"It seems to me that Hazlitt’s remarks actually present some weaknesses, but

1. Keynes’ reasoning is even more fallacious
2. Vienneau does not correctly identify Hazlitt’s weaknesses
3. Vienneau supports a theory that is also erroneous
4. Vienneau writes in bad faith, since, even if he were entirely correct on his point, it has no relevance to the extremely severe criticism that Hazlitt addresses to the General Theory.

Two small examples follow for ensuring that one is clear on the idea of the disutility of labor.

Example 1: If the best remuneration proposed to you is 10 euros per hour, and if you would prefer to do nothing rather than take the trouble to work for such a meager salary, your disutility of labor would exceed 10 euros.

Example 2: If someone offers you a wage rate of 100 euros per hour and they engage themselves to pay you for all the hours that you have done, without limitation, well, you are going to work more hours in a day ... In consequence, when the marginal utility of a gain of 100 euros becomes less than an hour of leisure, you stop working.

More observations:

• In contrast to what Keynes says, the utility of the wage does not become equal but less than the disutility of work when a person decides to stop laboring.
• The (marginal) disutility of work, in contrast to (marginal) productivity, depends on the volume of labor that has been provided by oneself, and not on the aggregate quantity of labor. I truly have the impression that Keynes, at certain moments, slips from one to the other. It seems to me that Vienneau is playing with the same sophistical fallacy, in particular when he writes that the amount of employment is fixed at the point where the utility of the marginal product balances the disutility of the marginal employment: he mixes up the idea of a volume of individual labor with another idea concerning the aggregate volume of labor.
• In reality, this question rarely arises for employees since employment contracts do not permit the wage to be molded to how many hours one will provide for himself. For example, if you are considering an employment contract of 35 hours at 5,000 euros per month, to take or leave, all that one can say is that for you, the marginal utility of 5,000 euros is more than the marginal disutility of 35 hours of work.

That having been said, I believe, Hazlitt’s text presents three weaknesses.

On the one hand, his critique of Keynes is not severe enough. He writes, Disutility is here so broadly defined as to be almost meaningless. But Keynes’ definition cannot properly be said to be ’too large’. It is at best extremely misleading. (see the reference to the volume of labour actually employed).

On the other hand, although he is critical of the definition given by Keynes, he fails to state what is the correct definition.

Finally, at times, Hazlitt seems to totally deny that the disutility of labor plays a role in the marginalist theory (Yet it may be seriously questioned whether this ’second postulate’ is representative of any substantial body of thought, particularly in the complicated form that Keynes states it.)

In fact, one would say that this notion plays an essential role, but that that role is subordinate to that of the ’first postulate’, since the measure of disutility affects the [reservation?] demand for labor by employees, which is one of the factors considered in the ’first postulate’. The ’second postulate’ is somehow included in the first. Vienneau is correct to say that the ’second postulate’ plays a part, but he fails to specify that that role is already integrated in the ’first postulate’. He is thus formally wrong when he writes, Obviously, then, the equality of the wage and the marginal productivity of labor is not enough to determine either wages or employment."

-- Baraglioul, 12 April 2012 at 16:18.

Somewhere below, one of these commenters continues:

" ’(By the way, if you could provide references.)’

I know of no empirical study that has contradicted the Austrian theory [of the business cycle], but Vienneau has attempted a theoretical refutation, if you are interested.

’It is that most of these people, being economic professors at an university, are supposed to produce work regularly.’

I had a similar discussion on an old forum. Some tried to explain why the Austrians are so marginalized, where they suspected that the reason comes from the fact that when a school (here, the Austrian school) has nothing new to say, it stagnates and has reached its limits. Like you, I think that this is due to economists considering economics to be a science like other sciences, and not a human science. In science it is imperative to produce new research - this is a little myth of progress.

The article from Daniel Sanchez (which I had not known) is interesting. The passage that I especially concentrated on is:

’If economic data do not seem to demonstrate the playing out of a certain market process described by economic theory (assuming the theory is sound and the data are correct), that would indicate that circumstances must have been dominated by another market process (also described by pure economic theory), another set of factors, or the interplay of several market processes/sets of factors.

The economic historian uses data to determine which economic laws are most relevant in any given episode. If, for example, the economic historian discovers trustworthy data that show that after an increase in the supply of a certain good the price for that good increased, instead of falling, that would not testify against the law of supply. That would instead be an indication that other relevant factors are at work, like perhaps a precipitous drop in the supply of another good for which the first good can serve as a substitute.’

Human action is effectively very complex, never mechanical An earlier regularity cannot predict a subsequent regularity except under a hypothetical invariant uniformity that prevails in the succession of natural phenomena. This condition cannot exist. There is no regularity or constant relation in human action. It is in this sense that the author differentiates between an economist and an economic historian.

Certainly, the mainstream sees things differently, and what they call ’empirical studies’ is perhaps pretention that reduces free will to a giant equation and thus human action to a constant variable. Even a non-economist knows that such an equation does not exist. When certain Austrians have begun to use empiricism, it is perhaps an attempt to reconcile with the mainstream.

As for the fiscal stimulus, I found [via Mario Rizzo] this quotation from Keynes. This is troubling:

’Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle’"

-- Meng Hu, 14 April 2012 at 22:52

After many comments, one of the above fools writes:

"A little rude? He [Michael Brady] deserves it. How many times has he belittled the Austrians in his unreadable sentences with the words: ’ignorant’, ’idiot’, ’nonsensical’, ’absurd’, ’incompetent’, etc., etc. It is exactly like that other clown, as already shown, yes, Robert Vienneau, who when he devotes time to posting on the Austrians, in practically each sentence, you find adjectives like ’stupid’, ’scam’, etc. With these people here, I do not hold back.

I think that the myth that has developed among non-Austrians that Austrians never know mathematics is explained by the reluctance of the Austrians to use models to ’validate’ their theories. As I told you the other day, it is always the case that they are stuck in theory."

-- Meng Hu, 7 May 2012 at 15:51.