Reisman and Praxeology

George Reisman’s book Capitalism is the best economics book available. Other books I have read on economics are less clearly written and include worse ideas. One particular example of this greater clarity is how Reisman explains what economics is about.

In Chapter 1 , Section 1 Reisman writes:

I define economics as the science that studies the production of wealth under a system of division of labor, that is, under a system in which the individual lives by producing, or helping to produce, just one thing or at most a very few things, and is supplied by the labor of others for the far greater part of his needs.

In Chapter 2, Section 2 he discusses some objections to this position on what economics is about:

The second challenge to economics’ focus on wealth is the mistaken claim that economics is a science of choices rather than a science of wealth—a science which studies the “allocation of scarce means among competing ends.” 

This contention rests on a logical fallacy. It does not see that what gives rise to economics’ study of choices and its concern with the allocation of scarce means among competing ends is the fact that people have a virtually limitless need for wealth but only a limited capability of satisfying that need at any given time. Thus, people must choose which aspects of their need for wealth are to be satisfied and which are not. Economics studies the determinants of human choice only insofar as they concern choices of how to spend incomes that are of necessity limited, and only insofar as they affect the attraction of capital and labor to the production of some goods rather than other goods. In other words, it studies the issue of choices for no other reason than that it is necessary to do so as part of its study of the production of wealth under a system of division of labor. To claim that economics is on this account a science of human choices rather than of wealth is to confuse an aspect of the science with its totality. To adopt this view is to be led to ignore all the really crucial matters that economics deals with and to seek esoteric extensions of the subject that have nothing whatever to do with its actual nature. Fortunately, those who adopt this view are highly inconsistent in its application and generally continue to devote most of their attention to the serious business of economics and leave the alleged necessity of extending the subject beyond the domain of wealth as a task to be carried out in the indefinite future.12

Reisman continues in note 12:

Regrettably, this criticism applies to the great von Mises and his efforts to portray economics as merely the “hitherto best developed part” of an allegedly wider science of human action known as praxeology. See Ludwig von Mises, Human Action, 3d ed. rev. (Chicago: Henry Regnery Co., 1966), pp. 1–10 passim. I wish to note, indeed to stress, however, that even when I have ultimately come to disagree with some position of von Mises, as in this case, I do not recall ever having read so much as a single paragraph of his writings that did not serve as the most powerful stimulus to my own thinking. Therefore, I urge everyone to give the most serious consideration to every portion of his writings.

So Reisman is criticising praxeology. In Section 1 of the Introduction to Human Action, Mises writes:

For a long time men failed to realize that the transition from the classical theory of value to the subjective theory of value was much more than the substitution of a more satisfactory theory of market exchange for a less satisfactory one. The general theory of choice and preference goes far beyond the horizon which encompassed the scope of economic problems as circumscribed by the economists from Cantillon, Hume, and Adam Smith down to John Stuart Mill. It is much more than merely a theory of the “economic side” of human endeavors and of man’s striving for commodities and an improvement in his material well-being. It is the science of every kind of human action. Choosing determines all human decisions. In making his choice man chooses not only between various material things and services. All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and the ignoble, are ranged in a single row and subjected to a decision which picks out one thing and sets aside another. Nothing that men aim at or want to avoid remains outside of this arrangement into a unique scale of gradation and preference. The modern theory of value widens the scientific horizon and enlarges the field of economic studies. Out of the political economy of the classical school emerges the general theory of human action, praxeology. The economic or catallactic problems are embedded in a more general science, and can no longer be severed from this connection. No treatment of economic problems proper can avoid starting from acts of choice; economics becomes a part, although the hitherto best elaborated part, of a more universal science, praxeology.

In Section 2 of Chapter I Mises writes:

Praxeology is indifferent to the ultimate goals of action. Its findings are valid for all kinds of action irrespective of the ends aimed at. It is a science of means, not of ends. It applies the term happiness in a purely formal sense. In the praxeological terminology the proposition: man’s unique aim is to attain happiness, is tautological. It does not imply any statement about the state of affairs from which man expects happiness.

In Section 4 he writes:

The teachings of praxeology and economics are valid for every human action without regard to its underlying motives, causes, and goals. The ultimate judgments of value and the ultimate ends of human action are given for any kind of scientific inquiry; they are not open to any further analysis. Praxeology deals with the ways and means chosen for the attainment of such ultimate ends. Its object is means, not ends.

I think Reisman’s criticism of praxeology is correct. 

Mises’ ideas about praxeology are esoteric extensions of economics and they’re also wrong. A person can have many different incompatible ends. Some socialists like the idea of hurting rich people, but this isn’t compatible with their stated desire to help the poor. Rich people get rich by providing goods that people want, and his customers often include many poor people. And if a business makes more profit it may be able to hire more people, including some poor people so more poor people would have the means to buy stuff they want. And there are other economic advantages to the government leaving rich people alone. So it is possible to criticise a person’s ends in terms of economics. A person can have many different goals and there is no guarantee of their compatibility so there are no ultimate goals.

Economics doesn’t require having a completely general theory of human action. Explaining the operation of a division of labour society is necessary for progress and a lot of progress has been made on that project. As Reisman points out later in Chapter 2, Section 3:

The fact that both the need and the desire for additional wealth are limitless for all practical purposes does not mean, however, that people automatically act to satisfy that need and desire. It is certainly possible for the need and desire for additional wealth to fail to result in the production of additional wealth, let alone in continuous economic progress. Indeed, history and most of the world around us are characterized by stagnation and poverty. The mere possession of a need or desire is never sufficient to ensure that the need or desire will be satisfied. In the absence of the influence of a rational philosophy establishing limited government and economic freedom and inculcating such convictions as that the material world has both reality and primacy, that it is intelligible, and that hard work pays, man is not able to devote himself sufficiently to the production of wealth.

It would be better to concentrate on more thoroughly explaining the good ideas of economics rather than working on bad philosophy in the name of praxeology.


Misfire: The Tragic Failure of the M16 in Vietnam by Orkland and Duryea is a detailed explanation of the problems with the M16 in Vietnam. American soldiers in Vietnam were outgunned by the Viet Cong who were being supplied with AK47s by the Soviet and Chinese governments. The Department of Defence in the US tried to fix this by giving soldiers M16s. The M16s were tested with a particular kind of ammunition and powder and they passed those tests. The US military had materials lying around that could be used to make a different kind of powder and ammunition and decided to use that instead. As a result of this decision, bullets sometimes got stuck in the rifles and had to be removed using a cleaning rod. This led to many soldiers being killed and to a shortage of cleaning rods. As far as I can tell the authors give an accurate account of what happened with the M16 and the government’s incompetence in dealing with the problem.

Unfortunately the book contains at least one major error. There is a section of the book about the role of the press in the Vietnam war. They then discuss what might have happened if WW2 had been covered the same way and they write (p. 201):

But the public’s parents and grandparents never had the opportunity in the 1940s to watch on not-yet-widely-available RCA, DuMont, Farnsworth, and Belmont television sets the February 1945 firebombing of the German city of Dresden. On that occasion, a combined force of U.S. and British heavy bombers incinerated and killed an estimated 25,000 old men, women, and children who lived in the historic German state capital on the Elbe River. Four waves of more than 1,300 allied heavy bombers dropped almost 4,000 tons of high explosive and incendiary bombs on Dresden, a city with no strategic importance whatsoever; its principal attribute was the manufacture of some of the world’s finest porcelain and chinaware. With the war all but won, it constituted a criminal act by the Allies (revenge of a sort for the Luftwaffe’s November 1940 firebombing of the British city of Coventry in an attack demonically code-named “Moonlight Sonata” by Reichsmarschall Herman Goering’s minions) that approaches every definition of a massive war crime.

The authors give no references for these claims about Dresden. In his book Dresden: Tuesday 13 February 1945 Frederick Taylor explains that Dresden had a lot of factories before the war and that most of their productive capacity was converted to war production, including production of ammunition (see especially chapter 13). Dresden also had a rail junction used to ship material to and from Dresden’s arms factories and to send Jews to extermination camps. Taylor’s book was published in 2004 and has been available on Kindle since 2011. “Misfire” was published in 2019, so the authors could easily have checked their claim that Dresden has “no strategic importance whatsoever”, but they didn’t bother.

The authors don’t discuss Dresden further. They threw away their scholarly integrity for the sake of a single paragraph about a matter that wasn’t directly related to the point of the book. This is a common problem. Lots of books make claims that can be refuted by doing a little research so you should be careful and sceptical about the contents of books.

UPDATE A better way to understand the problems with the M16 is to directly read the Report of the Special Subcommittee on the M-16 Rifle Program of the Committee on Armed Services House of Representatives. Then you don’t have to worry about mistakes from the authors of “Misfire”.


Crit_rat asked a question about hallucinations on Twitter:

Is an inner monologue technically an auditory hallucination?

I replied

No. Hallucination is a pseudo-scientific psychiatric term for self conversation that is unwanted for some reason, see Chapter 1 of “The Meaning of Mind” by Thomas Szasz and

Szasz’s position is that psychiatrists have been given the power to lock people up without trial in mental hospitals and to drug them without their consent without trial and that this is a violation of their civil liberties. In the UK in 2018-2019 the NHS reports that 49988 people were detained under the mental health act so this isn’t a minor violation of civil liberties. Psychiatrists use this power as a tool of social control to deal with behaviour that they deem to be undesirable and they call that undesirable behaviour mental illness. This undesirable behaviour may or may not be criminal. A hallucination is self-conversation that is unwanted by the person having it or by somebody else such as a relative or psychiatrist. The idea of mental illness is an excuse employed strategically by psychiatrists, mental patients and others to pretend that these institutions are scientific. Szasz has made suggestions for reform that have been rejected wholesale by psychiatrists and the government because they are attempts to reform toward individual liberty and responsibility. A longer summary with some suggested reading can be found in my Fallible Living Szasz essay.

The psychiatrist Michael Golding replied:

I hope a friend of yours is never in the ICU and hallucinating, while pulling out his life-sustaining breathing tube, when the doctor says that his hallucinations of someone saying he is being choked with a feeding tube is “unwanted”…”self conversation”

I replied:

If a patient has a breathing tube down his throat he can’t speak. So how do you know why he’s pulling it out? Also, the case you describe involves self conversation and you don’t want it to happen. So it doesn’t refute Szasz’s description.

Golding replied again:

They can write, you often can tell behaviorally that people are hallucinating, and they can tell you later, after you get them on the IV meds that stop the hallucination and returns them to their right mind.

I’m not keen on continuing this discussion on Twitter because it’s not good for discussion: explaining ideas in 280 character chunks with bad threading is not a good setting for discussion. I have offered to discuss the issue off Twitter on this blog or in any other venue he would prefer but Golding hasn’t taken me up on that offer. I’m still not very clear on Golding’s position. I think he disagrees with Szasz’s position, but  he hasn’t pointed to a particular essay, paper or book that provides a criticism of Szasz that he’s willing to explain and defend. His tweets remind me of the statemnent on Rearden Metal by the State Science Institute described on p. 183 of Atlas Shrugged in Part One, Chapter VII.

Golding also hasn’t clearly explained the relevance of this example. If a person is taking an action, such as pulling out a breathing tube, then he has a reason for doing that. His arms aren’t flailing around randomly. He is acting to produce a specific result. He has thought about what he is doing. That thought might be as simple as “I don’t like having this tube, so I’m going to pull it out” or it might be more complicated. All you know about what he is thinking is a result of trying to explain his actions and what he communicates about those actions in speech and writing. If he is trying to pull out the tube then he has decided to try to pull out the tube. If a doctor doesn’t like that decision, then these thoughts and actions are unwanted by the doctor. Calling the patient’s thoughts a hallucination is an example of “hallucination” being used as a label for unwanted self conversation. Golding doesn’t state whether he agrees or disagrees with this way of looking at the issue.

I think Golding’s position is that pulling out the tube is undesirable. I think the desirability of the tube being removed depends on the context. If a person wakes up in a hospital bed with a breathing tube he might be confused about what’s going on and try to pull out the tube because it is uncomfortable or because he thinks it is a feeding tube and doesn’t appreciate that he might die if he removes it. Under such circumstances it might be a good idea to restrain the patient from doing that until you have explained the situation to him. If he knows what the tube is and decides to remove it that’s a different situation and nobody should stop him from removing it by force. I think a person shouldn’t be forced to live because another person wants him alive. Does Golding want to force people to stay alive? Is he aware of Szasz’s criticisms of trying to prevent suicide by force and does he have an answer to them?

There is another complication to this story: people can lie and in this case the patient may have an incentive to lie. A person can be involuntarily committed if he attempts suicide. So if somebody is caught in the middle of a suicide attempt that involves pulling out a breathing tube he might say that he thought it was just a feeding tube to try to avoid being committed.

I have another question about this example. The patient claims that he thought the breathing tube was a feeding tube. Did the patient have previous experience with feeding tubes? If so, did he have a feeding tube voluntarily or was he forced to have a feeding tube?

I have nailed this particular piece of jelly to the wall to the best of my ability. But a clear explanation would make it easier to work out what Golding’s position is and whether it answers Szasz’s criticisms of psychiatry and the idea of hallucinations.

Note on “The Color of Law”

The Color of Law by Richard Rothstein is about anti-black government policies imposed by federal and state governments in the United States that segregated housing in the United States by race. I will discuss a couple of examples of topics covered in the book.

In Chapter 2 the author explains that there was a shortage of housing in the US from the 1930s to the 1950s because of the Great Depression and WW2. A New Deal agency called Public Works Administration (PWA) built housing . The PWA adopted a rule that the racial composition of the residents of its new housing should match the previous racial composition of the neighbourhood. The PWA often broke this rule and reserved the housing it constructed for white people. In chapter 9 the author explains that when a black family tried to move into a neighbourhood mobs of their neighbours would sometimes attack their persons and property and the government would refuse to enforce the law against the mobs. 

In chapter 5 the author explains that many developers required people who purchased their houses to sign covenants saying that they wouldn’t sell the house to black people. Governments often enforced these covenants at the expense of black people who tried to purchase such properties. I don’t think such provisions should be enforced either now or in any future ancap society. The purpose and effect of these provisions is to hurt people for stupid reasons not to facilitate cooperation. Also the supposed reason for excluding black people was that black people would lower property values, but the response of neighbours to black people moving in was to throw bricks through their windows, burn crosses on their lawns and use physical violence. Did the people who acted this way think that having different colour skin would lower property values but not threats, violence and vandalism? We shouldn’t concede anything to this kind of stupidity and evil.

The book has some weaknesses. The author thinks minimum wage policies are good when in reality it leads to unemployment among people with low pay (see Capitalism by George Reisman, pp. 382-384). He claims that income and social mobility have stagnated in the US which will make fixing the lack of integration between black and white people more difficult. So he wants the government to try to fix this problem by incentivising black people moving into white neighbourhoods with tax policies. It might be a good idea to arrange compensation in cases where there is an identifiable wrong to some identifiable person or group. Also, the market works to correct mistakes in the way resources are being used. Anyone who isn’t productive has to sell goods to maintain his life which will be bought by those who can use them productively (see Capitalism, pp. 316-319). The government doesn’t know how to do this and allowing it to try will only benefit those with political pull, not people who have been mistreated.

Szasz Discussion

This is a post whose comments can be used to discuss Thomas Szasz. Sometimes people say or write something critical about Szasz on a platform that is unsuitable for discussion like Twitter. This post is a more suitable place to discuss Szasz.

I have written a brief account of Szasz’s ideas and some references on the Fallible Living site.

I am willing to discuss the contents of that article and Szasz’s ideas more generally here. I would prefer that people who come here to discuss should have an account of their criticisms of Szasz that they’re willing to discuss and defend for reasons explained in Elliot Temple’s Paths Forward essay.

The state is not your friend

I sometimes post stuff like “the state is not your friend” on twitter and somebody asked me about it. As an example, I wrote:

The government is not your friend. They’re not providing services. They’re not trying to help anybody. To them you’re just a peasant and if they think you’re too uppity they’ll try to destroy you. I wish Grimes good luck. He’ll need it.

This was in response to the government threatening a man called Darren Grimes with prosecution for doing an interview in which the historian David Starkey referred to black people in a way that has been interpreted as derogatory. The government previously tried to prosecute Grimes for an alleged violation of election law during the brexit referendum. The attempted prosecution didn’t result in a conviction because there was no evidence of any criminal intent from Grimes. The government’s actions toward Grimes are malicious. The British government prosecutes lots of people for speech it doesn’t like. The British government is dangerous.

The government raises money by taxation and inflation, which amount to taking money from people without their consent. They claim to provide services in return for doing this. They are not serving anybody by threatening Grimes. The government has cut the budget for the justice system despite the fact that it seems to be falling apart. This isn’t an isolated example. On every area of policy they have terrible and destructive ideas. For example, the government announced a policy to let first time buyers get property with a 5% deposit. Are banks going to be forced to provide such mortgages? What effect will that have on incentives to build? Will the government subsidise these mortgages? What happens to the people with those mortgages if and when the government withdraws the subsidy? What happens if property values go down or interest rates go up and people with these mortgages are left with a mountain of bad debt? Ten years ago the US had a crisis caused partly by the US government trying to get mortgage providers to “help” poor buyers. Why is this new policy not going to be a repeat of that disaster? The government takes money for services that it can’t provide competently.

I don’t think this can be ascribed solely to ignorance or stupidity. The conservative party is aware of the work of FA Hayek and has been aware of him since the 1940s. And if you’ve read Hayek you know of the existence of Mises and could look up criticisms of government intervention in the economy. So why has the conservative government done nothing about government intervention over the past ten years? It’s not like they have a reply to Mises pointing out flaws in his ideas. They just don’t make any effort to explain why government intervention is bad, or to reply to criticisms of government intervention and they make no effort at reform either. Politicians in other parties also know of Hayek by virtue of the fact that they have heard of his existence from the conservatives, so they have the same problem. And anybody working for the state also has that problem.

Many people in the UK worship the state and even when they disagree with the government in power. Their idea is that the state is the solution to every problem and that government employees are great people. If people keep thinking like that then the government will continue to function as a giant burden if it continues to function at all. We have a lot of very serious political problems in the UK and the government is contributing to making them worse without addressing known problems with their conduct. 

“The government is not your friend.” They’re being hostile to a lot of people for bad reasons. “They’re not providing services.” Does trying to do a lot of things incompetently count as providing services? “They’re not trying to help anybody.” Does acting incompetently or maliciously while creating many new problems count as trying to help? Overall I think people should avoid contact with the British government as much as possible and should not sanction it. Is there something wrong with what I’m saying?

The Secret Barrister

The Secret Barrister:  Stories of the Law and How It’s Broken by The Secret Barrister is a book written by a barrister about the state of the British legal system. The short version is that the British government isn’t providing adequate law enforcement services. The government has cut funding for the police, the courts, the Crown Prosecution Service (CPS) and legal aid (the government paying defence costs for defendants who can’t afford a lawyer). One result of the cuts is that the police and the CPS often don’t provide information that is needed to prosecute defendants so many of them are released. And since legal aid has been cut many middle class people representing themselves because they can’t afford lawyer fees. Since these non-lawyers aren’t familiar with the law or with court procedure, their misconceptions cause problems in court that make the case take longer. The incompetence of people who represent themselves also leads to more convictions. The book has lots of illustrative stories about the British justice system going wrong, as well as history and statistics illustrating the impact of the government cuts. For example, in Chapter 4, the author tells the story of a woman called Amy whose partner Rob beat her up (p. 120):

Amy had sustained a multiplicity of injuries in the course of the assault. She had suffered a fracture to the left wrist, a fractured eye-socket, a broken jaw and extensive bruising and grazing where she had been dragged through the flat and out to the front garden. And she had given her account of what had happened to the police. 

But I know this – and the details of the assault and Amy’s history as set out at the beginning of the chapter – only because it all appeared on my brief in the MG5. This is the document we encountered earlier, composed by the police and (theoretically) containing a precis of what the evidence shows. 

The problem was that the actual evidence itself – the statement presumably taken from Amy and the medical records from the hospital – was nowhere to be found on my brief. Now, evidence not appearing on a prosecution brief is far from unusual. Often it will exist on the CPS computer and will just have been missed off the brief. Other times it will still be in the possession of the police, who upon prompting will forward it to the CPS to pass to the barrister. But it became apparent upon reading the notes of the previous hearings by the in-house CPS advocates that, in this case, the evidence had simply . . . gone. It had never been served on the defence. It had never even reached the CPS.

The evidence never turned up, so Rob walked free without a trial.

The government raises money through taxation and inflation, both of which involve the use of force. If you don’t pay taxes or you don’t obey legal tender laws, then the government will prosecute you. The police and courts use force to arrest people, fine them and imprison them. The only legitimate reason to use physical force is to respond to somebody else who has initiated the use of force. Some of the existing laws are about preventing the initiation of force: laws against attacking or damaging persons or property and laws against theft and fraud. So by cutting the budget of institutions for enforcing laws so they non longer work the government is sacrificing its ability to engage in the only activities it performs that are legitimate.

My guess is that the situation would improve if the government increased the budget for the police, the courts the CPS and legal aid. With enough public pressure maybe this will happen. But it is instructive that the government is so bad at deciding priorities that it cut one of the very few activities it undertakes for which the use of force can be legitimate. This is an illustration of Mises’ argument in Bureaucracy that without the profit and loss system the government is bound to be very bad at prioritising. 

Li and Vitanyi’s bad scholarship

In An Introduction to Kolmogorov Complexity and Its Applications 4th edition Li and Vitanyi claim that Solomonoff Induction solves the problem of induction. In Section 5.1.4 they write:

The philosopher D. Hume (1711–1776) argued that true induction is impossible because we can reach conclusions only by using known data and methods. Therefore, the conclusion is logically already contained in the start configuration. Consequently, the only form of induction possible is deduction. Philosophers have tried to find a way out of this deterministic conundrum by appealing to probabilistic reasoning such as using Bayes’s rule. One problem with this is where the prior probability one uses has to come from. Unsatisfactory solutions have been proposed by philosophers such as R. Carnap (1891–1970) and K.R. Popper.

What Hume actually wrote about induction was (Section IV, Part II, pp. 16-17):

Should it be said that, from a number of uniform experiments, we infer a connexion between the sensible qualities and the secret powers; this, I must confess, seems the same difficulty, couched in different terms. The question still recurs, on what process of argument this inference is founded? Where is the medium, the interposing ideas, which join propositions so very wide of each other? It is confessed that the colour, consistence, and other sensible qualities of bread appear not, of themselves, to have any connexion with the secret powers of nourishment and support. For otherwise we could infer these secret powers from the first appearance of these sensible qualities, without the aid of experience; contrary to the sentiment of all philosophers, and contrary to plain matter of fact. Here, then, is our natural state of ignorance with regard to the powers and influence of all objects. How is this remedied by experience? It only shows us a number of uniform effects, resulting from certain objects, and teaches us that those particular objects, at that particular time, were endowed with such powers and forces. When a new object, endowed with similar sensible qualities, is produced, we expect similar powers and forces, and look for a like effect. From a body of like colour and consistence with bread we expect like nourishment and support. But this surely is a step or progress of the mind, which wants to be explained. When a man says, I have found, in all past instances, such sensible qualities conjoined with such secret powers: And when he says, Similar sensible qualities will always be conjoined with similar secret powers, he is not guilty of a tautology, nor are these propositions in any respect the same. You say that the one proposition is an inference from the other. But you must confess that the inference is not intuitive; neither is it demonstrative: Of what nature is it, then? To say it is experimental, is begging the question. For all inferences from experience suppose, as their foundation, that the future will resemble the past, and that similar powers will be conjoined with similar sensible qualities. If there be any suspicion that the course of nature may change, and that the past may be no rule for the future, all experience becomes useless, and can give rise to no inference or conclusion. It is impossible, therefore, that any arguments from experience can prove this resemblance of the past to the future; since all these arguments are founded on the supposition of that resemblance. Let the course of things be allowed hitherto ever so regular; that alone, without some new argument or inference, proves not that, for the future, it will continue so. In vain do you pretend to have learned the nature of bodies from your past experience. Their secret nature, and consequently all their effects and influence, may change, without any change in their sensible qualities. This happens sometimes, and with regard to some objects: Why may it not happen always, and with regard to all objects? What logic, what process or argument secures you against this supposition? My practice, you say, refutes my doubts. But you mistake the purport of my question. As an agent, I am quite satisfied in the point; but as a philosopher, who has some share of curiosity, I will not say scepticism, I want to learn the foundation of this inference. No reading, no enquiry has yet been able to remove my difficulty, or give me satisfaction in a matter of such importance. Can I do better than propose the difficulty to the public, even though, perhaps, I have small hopes of obtaining a solution? We shall at least, by this means, be sensible of our ignorance, if we do not augment our knowledge.

What Hume wrote isn’t that we can only use known data and methods. Rather, he said that no argument can prove that the future will resemble the past. So drawing conclusions about what will happen in the future from past data is illogical. He didn’t say that the only possible form of induction is deduction.

In addition, the future always resembles the past in some respects and not others, so saying the future resembles the past is irrelevant to creating and assessing ideas.

Popper wasn’t trying to solve the problem of how to make Bayesian induction work. He claimed that induction was impossible, not that he had a way of making it work by finding the right prior (Realism and the Aim of Science, Chapter I, Section 3, I):

It seems that almost everybody believes in induction; believes, that is, that we learn by the repetition of observations. Even Hume, in spite of his great discovery that a natural law can neither be established nor made ‘probable’ by induction, continued to believe firmly that animals and men do learn through repetition: through repeated observations as well as through the formation of habits, or the strengthening of habits, by repetition. And he upheld the theory that induction, though rationally indefensible and resulting in nothing better than unreasoned belief, was nevertheless reliable in the main—more reliable and useful at any rate than reason and the processes of reasoning; and that ‘experience’ was thus the unreasoned result of a (more or less passive) accumulation of observations. As against all this, I happen to believe that in fact we never draw inductive inferences, or make use of what are now called ‘inductive procedures’. Rather, we always discover regularities by the essentially different method of trial and error, of conjecture and refutation, or of learning from our mistakes; a method which makes the discovery of regularities much more interesting than Hume thought.

Li and Vitanyi want us to think they can solve the problem of induction, but they can’t even summarise the arguments against their position accurately.

The concept of tax avoidance is evil

Apple recently won a tax avoidance case against the EU antitrust regulator. The regulator said that Apple changed its structure so that it was owned by an Irish company so that it would be charged low Irish tax rates. The EU somehow decided that Apple should have paid €13 billion more in tax. Not only is the tax avoidance case against Apple illegitimate, all such cases are inherently illegitimate and the concept of tax avoidance itself is evil.

One problem with the concept of tax avoidance is the idea that paying tax is some sort of moral duty and that the government presumptively owns all of your property. And make no mistake, that’s what tax avoidance actually means. Nobody can spell out any objective standard by which it can be decided whether you have avoided tax. What Apple did was legal, so the law itself is not the standard. The standard is that if the government decides you should pay more tax that is what you should do. If the government decides to steal every single penny you own and all of your fillings, then that is what you should do according to the idea of tax avoidance. If Apple had been lumbered with a €13 billion tax bill it might have been forced to shut factories or stores, or delay or cancel development of some products. People might have been fired because the government suddenly decided to take more of Apple’s money.

Another problem is that the concept of tax avoidance is a breach of the rule of law. Laws are supposed to be laid out in advance and if you don’t break existing laws then you’re not liable. But since everything Apple did to ‘avoid’ tax was legal, the regulator would be punishing them without them breaking the law. Apple couldn’t possibly know in advance whether its actions would be considered tax avoidance.

Another problem in this particular case is that the EU is undermining the independence of member states. The implicit meaning of this case is that Ireland isn’t allowed to lower its taxes to attract investment. Any company that takes advantage of Ireland’s taxes might be punished. So every country in the EU should adjust its taxes to be as high as the highest tax member for that particular category of tax.

The next problem is how exactly Apple is supposed to decide what tax to pay. The law isn’t an adequate guide because Apple didn’t break the law. How is Apple, or any other company supposed to make any decisions about what tax to pay? What exactly is the objective standard by which they are supposed to make the decision? The actual standard is that the government will just take whatever it wants by force and appeal to the greed and stupidity of its subjects to legitimise its actions.

The concept of tax avoidance also creates a conflict between government demands and profitability. Tax avoidance requires that a company should not pay the minimum possible amount of tax. But making more profits requires paying the minimum possible amount of tax. So the concept of tax avoidance creates conflict between companies accused of it and the government. And there is no way of avoiding this conflict because there is no objective standard by which tax avoidance can be decided.

The final point I’m going to make is that tax is money taken by force and force shouldn’t be used except in response to the initiation of the use of force. So the only services for which there could be any case for tax funding is services for defending against the use of force: police, the courts and the military. Governments are demanding so much tax that companies can and should go out of their way to minimise taxes because governments are using taxes for illegitimate purposes. Taxes are used to fund government programs like the welfare state and bank bailouts, neither of which have anything to do with stopping the initiation of the use of force. Taxes are also used to punish peaceful behaviour the government doesn’t like. This includes sin taxes on smoking, drinking and plastic bags. It also includes punishing people for saving. The British government allows people to save a particular amount of money each year tax free. If you save above that amount you are charged tax on any funds you withdraw. This amounts to punishing people for saving ‘too much’ by the government’s standards. I would go so far as to say that tax avoiding companies are heroes for resisting this immoral behaviour by governments.

Milton Friedman’s Methodology Essay

The economist Milton Friedman wrote an essay called “The Methodology of Positive Economics” (reprinted as Chapter 7 of The Philosophy of Economics: An Anthology edited by Hausman). This essay is influential, but it is also bad.

Positive and normative economics

Friedman writes about a distinction between positive and normative economics:

Positive economics is in principle independent of any particular ethical position or normative judgments. As Keynes says, it deals with “what is,” not with “what ought to be.” Its task is to provide a system of generalizations that can be used to make correct predictions about the consequences of any change in circumstances. Its performance is to be judged by the precision, scope, and conformity with experience of the predictions it yields. In short positive economics is, or can be, an “objective” science, in precisely the same sense as any of the physical sciences.

In Section I, Friedman writes more about positive and normative economics:

Normative economics and the art of economics, on the other hand, cannot be independent of positive economics. Any policy conclusion necessarily rests on a prediction about the consequences of doing one thing rather than another, a prediction that must be based – implicitly or explicitly – on positive economics. There is not, of course, a one-to-one relation between policy conclusions and the conclusions of positive economics; if there were, there would be no separate normative science. Two individuals may agree on the consequences of a particular piece of legislation. One may regard them as desirable on balance and so favor the legislation; the other, as undesirable and so oppose the legislation.

I venture the judgment, however, that currently in the Western world, and especially in the United States, differences about economic policy among disinterested citizens derive predominantly from different predictions about the economic consequences of taking action – differences that in principle can be eliminated by the progress of positive economics – rather than from fundamental differences in basic values, differences about which men can ultimately only fight. An obvious and not unimportant example is minimum-wage legislation. Underneath the welter of arguments offered for and against such legislation there is an underlying consensus on the objective of achieving a “living wage” for all, to use the ambiguous phrase so common in such discussions. The difference of opinion is largely grounded on an implicit or explicit difference in predictions about the efficacy of this particular means in furthering the agreed-on end. Proponents believe (predict) that legal minimum wages diminish poverty by raising the wages of those receiving less than the minimum wage as well as of some receiving more than the minimum wage without any counterbalancing increase in the number of people entirely unemployed or employed less advantageously than they otherwise would be. Opponents believe (predict) that legal minimum wages increase poverty by increasing the number of people who are unemployed or employed less advantageously and that this more than offsets any favorable effect on the wages of those who remain employed. Agreement about the economic consequences of the legislation might not produce complete agreement about its desirability, for differences might still remain about its political or social consequences; but, given agreement on objectives, it would certainly go a long way toward producing consensus.

Friedman thinks that there are basic values and that there is no rational way of deciding between basic values. He thinks he can avoid talking about those issues by discussing issues of implementation of supposedly shared values. There are at least two problems with this.

The first problem is that people don’t all share similar values. Friedman’s description of the minimum wage controversy is false. There are people who think the minimum wage will help the poor. There are many other people who don’t think that, including many politicians. Politicians will vote for minimum wage legislation to get elected even if they think it’s harmful.

The second problem is that it is possible to have critical discussions about values because values are linked to other ideas, including other values. If a person is a socialist and claims to value science, then you could explain to him  that socialism is incompatible with science. Scientists create knowledge by guessing solutions to problems and then criticising and testing the guesses. They have to be free to guess even if the government dislikes a guess. They also have to be free to obtain the resources needed to test guesses. Since socialism destroys resources, the resources needed for experiments are difficult or impossible to obtain. So a socialist who values science and comes to understand these problems will stop being a socialist.

Friedman’s epistemology

In Section II, Friedman writes:

The ultimate goal of a positive science is the development of a “theory” or “hypothesis” that yields valid and meaningful (i.e., not truistic) predictions about phenomena not yet observed.

Friedman claims that the point of science is to make predictions – he is an instrumentalist. The point of science is to explain how the world works, it is not primarily to make predictions. One weakness of this way of looking at science is that it neglects the problem that predictions and observations are both explanations. For example, if you want to explain a decline in employment by the imposition of a minimum wage then you have to understand the means by which that reduction is supposed to happen. If employers are anticipating that the minimum wage will rise in the future they may stop hiring people at wages below the new proposed minimum before the legislation is passed. If employers don’t anticipate the minimum wage rise, then many people working below that wage may be fired quickly. Government unemployment figures may also need some interpretation and explanation. The government may choose only to count as unemployed people who have signed on for government benefits, so if lots of people who were fired go into black or grey markets instead it might be difficult to see the effect of the minimum wage on unemployment.

Friedman continues:

Such a theory is, in general, a complex intermixture of two elements. In part, it is a “language” designed to promote “systematic and organized methods of reasoning.” In part, it is a body of substantive hypotheses designed to abstract essential features of complex reality.

Languages include substantive claims about how the world works that have come to be regarded as uncontroversial, and those claims are sometimes wrong. For example, the term “price gouger” implies an adverse moral judgement of people who charge high prices for goods to those who are in less fortunate circumstances, e.g. – people charging a lot for food after a hurricane. In reality, “price gougers” often had the foresight to store goods in anticipation of a disaster and if they don’t charge high prices they may run out of rare goods quickly so there is nothing left for some people who would otherwise get those goods. So “price gougers” are sometimes in the right.

Later Friedman writes:

Viewed as a body of substantive hypotheses, theory is to be judged by its predictive power for the class of phenomena which it is intended to “explain.” Only factual evidence can show whether it is “right” or “wrong” or, better, tentatively “accepted” as valid or “rejected.” As I shall argue at greater length below, the only relevant test of the validity of a hypothesis is comparison of its predictions with experience.

This claim is wrong. Many ideas can be rejected without testing as pointed out by David Deutsch in The Fabric of Reality Chapter 1. For example, I can reject the theory that what I will have for lunch is determined by the atmospheric pressure in Baltis Vallis on Venus without bothering to test it. There is no explanation of why the atmospheric pressure in Baltis Vallis should have anything to do with what I eat and there are explanations of why they shouldn’t be related. I am not measuring that pressure and have no way of knowing about it, and my decisions are a result of my knowledge.

Friedman continues:

The hypothesis is rejected if its predictions are contradicted (“frequently” or more often than predictions from an alternative hypothesis); it is accepted if its predictions are not contradicted; great confidence is attached to it if it has survived many opportunities for contradiction. Factual evidence can never “prove” a hypothesis; it can only fail to disprove it, which is what we generally mean when we say, somewhat inexactly, that the hypothesis has been “confirmed” by experience.

If a hypothesis is contradicted by evidence that’s a problem for the hypothesis regardless of whether it happens frequently. “Frequently” is a vague description that Friedman doesn’t explain. You might expect that your experimental data won’t lie perfectly on the curve predicted by a theory as a result of imperfections in the experimental apparatus, small fluctuations in the environment surrounding the apparatus and that sort of thing. Does that count as frequent deviation? If these “deviations” are understood properly then they don’t count as deviations from the theory being tested. Friedman is correct when he claims that factual evidence can’t prove a theory. He doesn’t explain how failing to refute a theory can give you confidence in it. Nor does he explain why confidence, which is a subjective feeling about a theory, is relevant to methodology.

Friedman on unrealistic assumptions

Friedman also has bad ideas about unrealistic assumptions in theories. In Section II he writes:

In so far as a theory can be said to have “assumptions” at all, and in so
far as their “realism” can be judged independently of the validity of predictions, the relation between the significance of a theory and the “realism” of its “assumptions” is almost the opposite of that suggested by the view under criticism. Truly important and significant hypotheses will be found to have “assumptions” that are wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions (in this sense).The reason is simple. A hypothesis is important if it “explains” much by little, that is, if it abstracts the common and crucial elements from the mass of complex and detailed circumstances surrounding the phenomena to be explained and permits valid predictions on the basis of them alone. To be important, therefore, a hypothesis must be descriptively false in its assumptions; it takes account of, and accounts for, none of the many other attendant circumstances, since its very success shows them to be irrelevant for the phenomena to be explained.

Not all abstractions are unrealistic. For example, treating a particular region on a computer chip as a NAND gate is an abstraction, but it may be a very realistic abstraction that models what that section of the chip will do very accurately. And there are many other examples like this. So why is Friedman saying this?

In Section III he gives an example that explains why he’s saying it:

It is only a short step from these examples to the economic hypothesis that under a wide range of circumstances individual firms behave as if they were seeking rationally to maximize their expected returns (generally if misleadingly called “profits”) and had full knowledge of the data needed to succeed in this attempt; as if, that is, they knew the relevant cost and demand functions, calculated marginal cost and marginal revenue from all actions open to them, and pushed each line of action to the point at which the relevant marginal cost and marginal revenue were equal. Now, of course, businessmen do not actually and literally solve the system of simultaneous equations in terms of which the mathematical economist finds it convenient to express this hypothesis, any more than leaves or billiard players explicitly go through complicated mathematical calculations or falling bodies decide to create a vacuum. The billiard player, if asked how he decides where to hit the ball, may say that he “just figures it out” but then also rubs a rabbit’s foot just to make sure; and the businessman may well say that he prices at average cost, with of course some minor deviations when the market makes it necessary. The one statement is about as helpful as the other, and neither is a relevant test of the associated hypothesis.

Friedman’s assumption isn’t just unrealistic. It contradicts the explanation for why businessmen actually make a profit on a free market. An individual businessman has to make guesses about how to make money and then test those guesses. The businessman might do AB testing of different products or different ways of displaying products. So the businessman would do lots of stuff that doesn’t work. And a businessman who tries too many experiments that don’t work will fail and will stop being a businessman. The resources he would have used will go to businessmen who haven’t failed. The operation of the market depends on profit and loss. Leaving out loss eliminates part of the explanation of how markets work in reality. The reason Friedman made this assumption is that it provided him with a way to construct a tractable mathematical model of a business. This made Friedman look clever to people who are easily impressed by maths. This is also the reason for his instrumentalism. By ignoring the requirements for coming up with a correct explanation he could construct a model that bears scant resemblance to reality but appears to make predictions if you don’t pay enough attention.