Contrary to popular thinking, the stock market does not have causative powers as far as economic activity is concerned. The prices of stocks only reflect individuals' assessments of economic reality. And while individuals can change their evaluations of economic facts, writes Frank Shostak, they cannot alter the facts themselves.
Capitalism is not so much a social system, writes Llewellyn Rockwell, but the natural result of a society wherein individual rights are respected, where businesses, families, and every form of association are permitted to flourish in the absence of coercion, theft, war, and aggression. In this way, and despite the current anti-business frenzy, capitalism is an indispensible expression of freedom.
The Austrian School of economics is known for its aversion to mathematical modeling of human behavior. The neoclassical mainstream, on the other hand, is quite fond of this approach, and uses the mathematical method for just about any problem. It is fair to say, writes Robert Murphy, that most mainstream economists would prefer the precision of a false formal model over the generality of a true verbal proposition.
In this excerpt from his new book, Gene Callahan explains that economics does not attempt to decide whether our choice of ends to pursue is wise. It does not tell us that we are wrong if we value a certain amount of leisure more than some amount of money. It does not view humans as being only worried about monetary gain. There is nothing "noneconomical" about someone giving away a fortune, or turning down a high-paying job to become a monk.
In the 1930s, the National Bureau of Economic Research introduced the economic-indicators approach as a way of capturing early warnings regarding upcoming recession or prosperity. The indicators approach is based on a view that it is possible to ascertain the state of an economic business cycle by monitoring economic data, regardless of what the nature of the causes of the business cycle are. Despite the simplicity of this approach, it does not always work, writes Frank Shostak.
In the natural sciences, a laboratory experiment can isolate various elements and their movements. There is no equivalent in the discipline of economics. The employment of econometrics and econometric model-building, therefore, is an attempt to fabricate a laboratory where controlled experiments can be conducted.
Despite its great appeal because of its simplicity, the supply-demand graphic as employed by mainstream economics is a tool that is detached from the facts of reality. The real-world economy is far too complex to be faithfully rendered on simple graphs that take no account of uncertainty, entrepreneurial speculation, and the ceaseless change of the market economy.
Mainstream economists are especially critical of Austrians for their lack of desire to incorporate mathematics in general, and multivariable calculus in particular, into their economic analysis. The criticism goes something like this: It does not matter whether or not mathematics is the most appropriate tool to describe economic human action. What matters is that most economists do use math, it has passed the "market test," and, therefore, it is the correct tool to use.
While it is perfectly clear that an individual capitalist or speculator may make losses on the stock exchange, it is very doubtful whether "society" can make such losses. The question with which we are concerned here is whether an individual's losses from domestic stock exchange transactions represent a loss to the society to which that individual belongs.
When individuals are not owners of resources, they are not able to assess their value; and when resources are publicly owned, their use will be systematically hasty and imprudent. When we realize that public ownership leads to systematic haste and imprudence, we get a hint that the inability of assessing the value of resources has deleterious consequences for most of us, with no one to blame except perhaps those who insist on keeping the institution of public ownership in force.
