I agree Pericles.

Some smart young apprentice masters of the universe go to university, and after being prodded by their parents or peers to do "the best they can in life", decide that it's easiest and safest to make lots of money by purely plying their brain. All they ask themselves is what do I want and how do I get it. They never question what is the right thing for them to do bearing in mind that they are also part of a society.

Therein lies the problem - the selfishness takes over and all non-financial considerations are relegated down their list of priorities. This leads to all types of hair-brained schemes minus any sense of propriety.

Hi Maiko,
It is refreshing to see a contributor to these columns who is willing to go beyond the regurgitation of hackneyed philosophy to suggest the possibility that there might be a better way.

Are you advocating a new social reform? Perhaps a merging of the regimen of the ant's existence with the entropy of human industry when you say: "A truly natural economic system would be a system that does not depend upon the state for its stability"? Do you have an model in mind?

As one person who has agonised over this question for the past 20 years or so I, for one, would be interested in hearing thoughts on how such a reform might work. Are you passionate enough about the topic to enter into a dialectic?

A good and interesting article; and pay no heed to the sniveling of rude and ignorant morons.

Your discussion of science, the necessary attributes of a science of economics, and your criticism of the defects of mainstream economic theory, are all sound.

The body of theory you are talking about already exists.

The Austrian school provides an integrated body of social theory, including economics, that satisfies all the conditions for science you set out. It also criticizes the mainstream neo-liberal schools precisely on the ground that you say is fundamental. Essential to economics is the study of market transactions in money prices. But the crucial factor in every single price is what you are calling the “mentalist” element, namely, the subjective value of the individual in deciding whether to buy or sell, or abstain from buying or selling.

The Austrian school is ‘positivist’, in the sense in which you use the word: it seeks to discover universal propositions of human action, independent of historical categories. It is not positivist in the sense that the so-called neo-liberal schools use the word: seeking to specify and test formal models, or measure by objective means the empirical results of those models.

The Austrians reject these methods for the same reason you do. Since the critical deciding factor in human action is subjective, and since these values are not measured and can never be objectified by money prices, therefore the mainstream positivist *method* – mathematical equations and models and empirical measurement – is invalid. That is why they have failed to come up with one single universal proposition, and why, as recently as early 2008, the disciples of these schools were saying the economy is fine.

However there are such things as universally valid and sound propositions of human action. For example:
1. “man acts”
2. “human action always entails preferring A to B”
3. “man’s action is intended to substitute an outcome in the future more favoured, for an outcome less favoured, from the point of view of the actor”

From such axioms, or from what can logically be deduced from them, the Austrian school has built up an integrated comprehensive body of social theory that answers all your desiderata. It accounts for the phenomena of social action and exchange without and with money, social co-operation under a division of labour, money, prices, capital, interest, credit and the trade cycle, wages, taxation and intervention, and the non-economic values that we all strive for too.

Using the different but still scientific method of axioms and what is logically consistent with them, the empirical side takes care of itself, just as with the science of geometry.

The Austrians are the only school of economics to have successfully predicted the GFC years in advance: http://mises.org/story/3128 . It is also the only one to have predicted the Great Depression years in advance. The Austrian theory of the trade cycle shows how the cycle of booms and depressions originates in inflation of the money supply, not as per Keynesian or neo-liberal orthodoxy.

Mises’ 1921 work Economic Calculation in the Socialist Commonwealth also showed how socialism cannot work in theory, let alone in practice because, lacking a market in capital goods, there could be no economic calculation in terms of prices, and it could thus only produce the planned chaos that it does in fact produce.

All the interesting questions on epistemology, cognitive psychology, and economics that you raise are answered comprehensively by Mises in his magnum opus Human Action, 1948.

His student Murray Rothbard also explores the question of a stateless society in Man, Economy and State with Power and Market.

“A free market society might be unstable precisely because such a society is one that humans are unable to form through free choice.”

Since force and fraud are illegal in market transactions, why could humans be unable to form such a society through free choice?

It is more likely that a free market society would be unstable because it is so difficult to stop armed gangs from becoming governments.

The home of the Austrian school is at mises.org ; see also lewrockwell.com

Sardine,

Since when do these lofty principles or whatever they are ever get put into practice exactly? Truly wonderful stuff I'm sure, although so is nirvana I understand.

OTOH the sorts of things I am talking about have been happening in spades in the REAL WORLD for decades. You'd see that if you didn't have your head permanently stuck in a book or in a bucket of sand. Deign to descend out of your lofty eyrie and see what's actually happening on the ground, then comment, why don't you.

What a pompous piece of puffery, Jardine K Jardine.

>>The Austrians are the only school of economics to have successfully predicted the GFC years in advance<<

That's as maybe.

But The Economist magazine - maybe you have heard of it - was also quite consistently prescient. The raspberry they gave Alan Greenspan on his retirement was quite specific.

"Investors' exaggerated faith in [Greenspan's] ability to protect them has undoubtedly encouraged them to take ever bigger risks and pushed share and house prices higher. In turn, American consumer spending has become dangerously dependent on unsustainable increases in asset prices and debt."

And:

"When the party ends, Mr Greenspan will not be there to clean up the mess. But end it surely will."

Possibly because The Economist doesn't belong to a "school", this had escaped your notice.