Austrian Economics and Interval Value Scales

I've been reading about Austrian economics, and how it differs from mainstream neoclassical economics. My understanding is that the Austrian economist's main criticism of neoclassical economics is that neoclassical economists treat value as interval, while one could only objectively claim ordinal preferences; that is, Austrian economists claim individuals only have an ordinal list of preferences, not a continuous interval scale of value. And they're right, you can't objectively claim that value is interval, but if value is ordinal only, then it is very curious that neoclassical economics is useful at all.
If neoclassical economics were totally wrong, then it wouldn't make successful predictions. So the truth must be somewhere between Austrian and neoclassical economics. I would like to suggest that interval value scales may be a useful approximation of actual ordinal preferences. Approximations are widely used in the sciences. For example, in physics, Newton's laws of motion are used all the time to make very accurate predictions even though they are approximations that ignore relativistic effects. When physicists figured that Newton's laws of motion were not entirely correct, they did not throw them out; they simply noted that they are approximations and made sure to note when they are useful and when they are not. This same approach could be used in bridging the gap between Austrian and neoclassical economics. If it could be shown experimentally that for many goods, the value scales of individuals are near interval then much of neoclassical economics would be validated. I haven't been able to come up with an experiment that would resolve this question, but I don't see any reason why it should be impossible.
I find it curious that nowhere in my readings have I found anyone who discusses the possibility.

The Road to Voluntary Government

I'd like to talk a little bit about how I came to support voluntary government. This process started because I was thinking about intellectual property (IP). Like many libertarians I came to the conclusion that it is not an innate right to be able to own ideas. Even though the institution of intellectual property has gained huge acceptance in the real world, many people struggle to justify it ethically. Ideas are not scarce resources, you can distribute ideas without reducing your ability to consume them. It makes no moral sense to establish property rights over non-scarce resources and, it is immoral to prohibit someone from using their property in a way which does not violate your property. So I decided that I did not believe that ideas could be property, but IP still seemed vital to continuing prosperity, because ideas are public goods and if people did not reap the benefits from their investment into researching ideas, then they would have little incentive to do so. For example, the only reason software companies sink resources into writing code, is because they know they will have the exclusive right to sell the product of that code. So I was stumped for some time. It didn't seem right that something could be necessary and unethical at the same time.
Then I realized that people would be willing to come to a collective agreement to pay an inventor if they benefit from using their idea, because it is both ethical and beneficial to agree to pay for the use of public goods. From there I started thinking about other public goods like roads and defense, and how similar agreements can exist to fund those as well. My second realization was that these agreements are very much like government. It would be very possible to form government around a voluntary social contract.
Realizing that an agreement to form a government could exist made me realize something else, which should have bothered me before, but didn't. Strict classic libertarian government, who's only role is to protect private property rights, but which is not voluntary, must still collect taxes (can't fund police without taxes), and is still unethical because forced payment is no less ethical because it goes to the protection of property, the protection of property is a good like everything else.
This chain of reasoning is what set me along the road to realizing how fully ethical government could be established. This was particularly satisfying to me because traditionally as libertarians get more moderate (less anarchist), they become less rigorous about their reasoning, and it becomes easier for them to support non-libertarian ideas, but here I had become much more moderate and much more rigorous at the same time. I later told one of my friends that I was both moderate and rigorous about my libertarianism, and I got a very strange look from him; very satisfying.

Morons are Infuriating

I read this article titled "Why do the rich give away so little?" by Austan Goolsbee. Goolsbee bemoans the fact that most rich people don't give away lots and lots of their money.
Goolsbee writes:

The rational economic argument for accumulating wealth says that people want to use it for something: to spend, to give to their families to enhance their future standard of living or to do something philanthropic. When you look at the Slate 60 list, however, you see that philanthropy can’t be the main reason. For all of their amazing generosity, the super-rich typically do not give away their entire fortunes, or even a big share. That’s what makes Buffett so notable. For 2006, the Slate 60 not including Buffett pledged or gave a little over $7 billion to charity. Yet as of September 2006, the 60 richest Americans had an estimated $630 billion of wealth, up more than $62 billion (about 10 percent) from the year before. People are accumulating money much faster than they are giving it away. Carroll says the super-rich can’t be accumulating the money with the intention of spending it, either, because no one could spend that much.

I found it very irritating because the author is under the impression that wealthy people hoard money and just sit on it, like Scrooge McDuck. I can understand being angry about that, that would be monumentally stupid and hurt pretty much everyone, but rich people are anything but stupid with their money (duh, that's why they're rich). The money of rich people is almost always productive; they have investments. If Goolsbee had taken any time at all to think from the perspective of a rich person, he wouldn't have written this article. It's one thing to be angry at the rich, but this is just moronic.

UPDATE:
I have recently learned that Goolsbee is a professor of economics at the University of Chicago (link), which just further confuses me. Shouldn't Goolsbee know better? I spent some time re-thinking this article, but I still can't figure out where he's comming from.

Yum, more alcohol.

So, the Washington state senate is looking to double the number of liquor stores open on Sunday (read about it here). I should note that in Washington, all hard liquor sales must be done at state run liquor stores. Not exactly a victory for free markets, but anything that increases my access to alcohol is good by me.

What caught my eye was this little gem by the head of the budget panel, Margarita Prentice (D-Renton): the Seattle PI says, "She said she has carefully watched the pilot project and is convinced that further expansion would raise needed revenue without causing more alcohol problems." What a shock! You mean to say that more store hours increases profits? and that alcoholics aren't too stupid to buy a day in advance? The government is fabulous at controlling scarce goods. I suppose I should just count my blessings that that I can buy beer at Safeway.

The budget panel is supposed to pick the locations by September. Efficient.

No Time to Write

I would really like to write and post stuff to this blog more, but this last week of school and finals week next week will be taking up a lot of my time. I plan to write significantly more over spring break.

Wow: A Derivation of the Private Property Ethic

I have long assumed that an ethical system must be axiomatic. You can't derive a system of ethics from a priori knowledge. But I have been proved wrong; Hans Hoppe wrote a paper doing just that. In his paper, which you can read here, Hoppe derives the private property ethic and the homesteading principle.

Hoppe's argument is roughly this:

1) Any proposition which is inconsistent with the ability to make propositions is self contradictory.
2) For a human to make any proposition requires the presupposition of exclusive use over that human's body (private property).
3) Combining 1 and 2 means the only self consistent ethic is private property.

There are a lot of subtilities in his argument that I don't think I have grasped yet. I am not sure I am convinced by his proof of the homesteading right, and I am troubled by the fact that his proof does not seem to offer a justification for the meta-right, the right to enforce your rights by force.
Although I have some concerns about the argument, I am none the less very excited and happy to heave read this paper. I need time to mull this paper and Hoppe's arguments over.

A Step in the Right Direction for Washington State

On my way home from school I happened to glance at a Seattle Times newspaper stand as I walked by. I was very happy to read that the Washington State Senate has passed a bill creating 'domestic partnerships' which provide some of the same legal rights as marriage does. Governor Gregoire has said she supports the bill, so she is expected to sign it if it passes the house. Domestic parnerhips will provide hospital visitation, inheritance, funeral arrangement rights, as well as a few other rights. Hopefully this is just a stepping stone to establishing equal marriage rights for gay couples in the next few years.
The Seattle Times article has an interesting map showing the states that have same-sex partnership laws and the states that have legislation pending. Washington will be the seventh such state.

I have to applaud Sen. Dale Brandland from Bellingham who was the only republican to vote for the bill. Dale cited hearing Charlene Strong speak as the reason he voted for the bill. Charlene spoke in the senate earlier about being denied the right to visit her life partner, who later died, in the hospital after her partner was trapped in her basement studio by rising storm water. Way to go Dale; way to put principle over party.

I should note that in general I oppose conferring special economic rights on married couples, but because the current government sanctioning of marriage is not likely to change anytime soon, I support equal application to heterosexual couples and homosexual couples.