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Petter Sandstad

Unsolved problems, and wanted works

2 posts in this topic

What problems lies unsolved (or partly solved) in the field of economics?

Which works would you like to see written in the future?

In advance, thank you for your answers.

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This is Richard Salsman's reply to the question posed by Petter Sandstad.

This is a good question. Before answering it, I think it's worth re-iterating a crucial observation made by Dr. Andrew Bernstein at the outset of his forthcoming book, "The Capitalist Manifesto." He writes:

"Objections to capitalism are not based on factual grounds - and all the evidence in the world establishing the freedom and prosperity of those living under capitalism will not influence the system's critics to the slightest degree. The criticisms are motivated solely by moral and philosophical theories. Since long before capitalism's 18th century inception, moral theories antagonistic to egoism and profit-making have been dominant. . . . The writings of the great economists both explain the workings of a free market and validate it as the only means by which to create wide-spread prosperity. That economics is relegated to the end of this book, therefore, represents no slap at the economists. Quite the contrary, for to a significant degree they have done their job superbly. It is time for the moralists and philosophers to do theirs."

Dr. Bernstein is correct that economists "have done their job superbly" - that is, the free-market economists have done so. In my judgment the best among all of them is French political economist Jean-Baptiste Say (1767-1832). Indeed, I'll be making the full case for this judgment in a lecture to be delivered at this summer's Objectivist conference in San Diego.

The "problems" infesting contemporary economics (much of which consists of brazen attempts to evade or negate the doctrines of free-market economics) are primarily the products of bad philosophy. Thus a key task in fixing contemporary economics is to re-formulate sound, free-market doctrines on the foundation of rational political economy. This discipline, in turn, must be grounded in rational philosophy: rational epistemology, rational ethics and rational politics. As you may know, the so-called "disciplines" of economics and politics today are bifurcated. At the graduate level especially economics has morphed into math-physics-engineering, while political science has degenerated into a swamp of dogmas: statism, racism, feminism, multiculturalism and other aspects of the arbitrary or the trivial. In sum, there's not much serious scholarship in political economy; the few who practice it are Marxists - hardly the advocates of reason, egoism and capitalism which the science requires. Even Austrian economists today are no help, to the extent they prattle about "radical subjectivism," "value-free economics" and "bubbles." In fact economics (properly, "political economy") is value-laden; needed are theories of objective economic value and method. And superstitious bubbleheads must be smashed.

Good as much of it is, Classical political economy is burdened with rationalism and the labor theory of value; David Ricardo, the favorite of George Reisman, is only the most egregious case. You might be surprised how many Ricardians still contaminate contemporary economics; in my view they deserve a rung in Hell not far from the one fit for Keynesians.  Jean-Baptiste Say was the only Classical political economist who rejected these falsehoods and substituted in their place both truth methods and doctrines. I'll reserve additional comment about Austrian economics for another place in this Forum, where I've been asked to discuss its good and bad features. But by way of illustrating Dr. Berntein's point, let us recall how in two fabulous books published in the late 1950s Henry Hazlitt (and contributors) substantially demolished Keynesian quackery - yet how that quackery lives on in contemporary economics because it satisfies the statists' predilections.

As for necessary new scholarship, which has not as yet been undertaken by even the best of past theorists, I'd say most of it must entail explicating pro-capitalist political economy. Specifically, much work needs to be done on 1) the theory of property, 2) the theory of profit, 3) the theory of entrepreneurship, 4) the theory of capital values (stock prices) and 5) the theory of "globalization." These all need to be positive theories and fully-anchored in Objectivist philosophy. As for mere polemics, I'd say more work could be done refuting the prevailing myths associated with 1) "market failure" (including "externalities" and "public goods"), 2) the cause and consequence of the Great Depression and 2) natural resource development.  Viewing the matter broadly, a modern logically-structured and inductively-grounded treatise on the positive doctrines of capitalism is still required.   

Sincerely,

Richard M. Salsman, CFA

President & Chief Market Strategist

InterMarket Forecasting, Inc.

1777 Fordham Boulevard - Suite 202-4

Chapel Hill, North Carolina  27514

WEB: intermarketforecasting.com

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