Saturday, February 12, 2011

Economics is Human Action

When thinking about the science of economics, many people unfamiliar with the true purpose of its dynamics tend to associate vast amounts of meticulous mathematical calculations and graphs with it. It is no mistake that people make these innocent assumptions, considering the fact that economics is of course a higher biology that requires tact and cognitive skill of a certain level. Yet if indeed people decided to investigate the true purpose of economics, they’d find their search would be quite fun and in the end their life undertakings would become more organized.

When a young kid gets exposed to economics it is usually around his high school years, this form of economics is called Keynesianism. Keynesianism was a school of economic thought that arose some 75 years ago, and the beginnings of its tedious and unjust rigmarole are found in John Maynard Keynes’ The General Theory. Here in this book John Maynard Keynes expounds a literary science-fiction treatise of a Utopian, better life. This book calls for a socializing of investment and paints a rosy picture of a central planner allocating resources to the proper sectors of the economy. Keynes had much to gain from promoting a government to heavily intervene, since he himself worked for the treasury and found himself a successful speculator by swindling his earnings as part of the coercive sector. [i]

Sadly this has lead to an illumination of government in our lives. Every preceding economist, whether claiming to be laissez-faire, monetarist or hard-core Keynesian, all espouse a form of government in their models and research to a certain level. Keynes’ models are now fed through avenues of various schools of thought including: New Keynesianism, Monetarism and in certain cases, Neoclassical Economics. This has gravely eschewed and created long fought debates amongst these academics. Many times their data can be manipulated to promote legislation that derives from their political perspective, and thus politicians are now finding these economists to prop up and push their legislation.

Keynesian models (created by the later Keynesian School) focus on macroeconomics, or the broader economy at large. They use an outdated system of IS/LM Curves, Cobb-Douglas functions and these other entities of market distortion that serve as alibi for central banks and inflation. What has happened is that Keynesianism has been monopolized within the intelligentsia of all universities in the world. This occurred because government has practically infused itself into the university system in the United States, by providing funding to almost all the universities (even private and ivy league schools) in some form or another.

When I point out that government is investing in the private university system I say so because although they do not do so directly in certain cases, money is spongeable, and their structure and power is indeed pervasive. They have influenced every sector of the nation as a whole, finding themselves inserting influence into areas people are unaware of. An example is corporations (this example is the best example since almost everyone is unaware that they are a creation of the state).[ii] Due to the government having created the corporation, the investments of corporations into private universities is thus money created and subsidized by the state. From this state influence, the academic structure of the US is not very different from university to university, whether private or public. Keynesianism has thus become the status quo economic system of the government, and intelligentsia in the US as well.

It is not a question of whether or not prominent economists such as Robert Barro, Milton Friedman, Stiglitz, Mankiw or Krugman and so on, have been blind to the vast similarities in their economic studies and theories, but that they continue to fight or ideas that are purely statist and unjust in the long run. Any form of economics that suggests the existence of government at all, whether limited or large, is purely eschewed and of short run perspective. Many times Keynesians are blamed for being short run stimulators (which in the end results in market distortions by creating bubbles through inflation and government borrowing), yet classical-liberal, minarchist and limited government economists (although many times aim at longer run notions than Keynesians) still use a system of economics that requires searching for answers of economic stimulation through central planners.

The mathematics that satisfies the economic palate of the modern academic government-loving economist is Calculus, yet simple arithmetic is all it takes to solve what are the basics of human action. Calculus while very efficient when dealing with sciences such as physics, biology, chemistry or any other various forms of our lives that deal with objective tangible structures, can not in any way help define the economy of ever moving and evolving humans. Since the economy deals with individuals, which each have subjective values and different desires, one cannot count these individuals as a structure. They can be seen as forming part of a beautiful phenomenon that swiftly adjusts through spontaneous order, one cannot calculate it because human action itself is incalculable.[iii]

Let us take the most basic dynamic of calculus for example, the derivative. Infinitely small increases are the first derivatives of the amount at any given point, and the Δs of another factor can become the first derivatives as well. And then, the discrete jumps of human action can become the magically transformed smooth arcs and curves of the familiar geometric portrayals of modern economic theory. This is absurd, human action is subjective, how is it that derivatives can calculate actions being weighted upon each other when people perform those actions suited to their desires, taking into account a plethora of factors. Calculus narrows it down to only a few of them. The use of mathematics necessarily leads the economist to distort reality by making the theory convenient for mathematical symbolism and manipulation. Mathematics takes over, and the reality of human action loses out.[iv]

Whilst mathematics perhaps serves the Keynesian (regardless of how much government he desires), his models are always going to render results suited to only “his” political point of view. Keynesian economics is what all statists desire to argue with each other missing the most basic reasons for the economic pitfalls in the first place, that being the existence of government. Human action, an ordering mechanism when left unfettered, is the existence of subjective individual thought organization. This is where economies witness perpetual acclivity, whereas the Keynesian and his models witness insecure markets and stagnation. A question one might ask in the end is, if mathematics is not useful in economics then what is the economist useful for? One should see that his importance lies in the fact that his job is to help organize individual thought, by expounding the perils of government on human, social and economic order. Thus, making calculations of the market more serene and simple. Only basic arithmetic may be necessary in delineating Austrian Economics.

1 comment:

  1. "Every preceding economist, whether claiming to be laissez-faire, monetarist or hard-core Keynesian, all espouse a form of government in their models and research to a certain level. "

    Well, because they have some common sense.