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You repay the money because there is an institutional structure which makes not repaying the debt (bankruptcy and moral condemnation) more costly than paying back the debt.

You own your house because there is an insitutional structure which makes someone else taking it from you expensive (prison with respect to private individuals, a collapse of the modern economy and tax base for any state that tries to vitiate the populous's property rights).

All the past events upon which modern economies are built are forgotten if they are not formalised in institutions.

If we have an oral debt contract, rather than a written one, [1] then it is easier for you to not pay me back because even if morally the same debt contract was agreed in the past different present and future insitutions contrain our actions.

No?

The very fact that bygones are bygones in mainstream economics demonstrates its general uselessness. People definitely remember cui bono.

Leftoutside: In part, yes, we respect the past because an institutional structure exists which rewards us if we don and/or penalises us if we don't. But, sometimes we recognise debts and property even when no third party will enforce those rights. And, that very institutional structure doesn't exist except for the fact that people create it and maintain it in being. So, ultimately, it is always people who decide that bygones are not bygones.

Mandos: that's a bit too strong. It may be that in some decisions we do, and in others we don't, see bygones as bygones. For example, those actions and expectations that create the very institutional structure that Leftoutside is talking about may recognise bygones. But action *within* a pre-existing institutional structure may not. (And, it was a very mainstream economics department that encouraged me when I decided to make this my PhD thesis topic many years ago.)

Bohm-Bawerk worked on some of these problems in his famous book on Capital theory -- and some of these issue iare also adressed by Mises, Bohm-Bawerk's student.

> The issue is not technocrats vs moralists. The issue is consequentialist morality vs non-consequentialist morality.

No, that's not what Steve was talking about. He was talking about political effectiveness, and observing that the use of reason (technocracy, if you will) is ineffective in the political realm. Morality, the lack or type thereof, is also secondary in politics.

Steve is talking about discourse, in Foucault's sense. To counter a discourse (such as the American one, framed in terms of individual puritan values), it is necessary to supplant it with another discourse, which can only be done if the new one has greater emotional appeal.

> Do we choose whichever policy is [appears a priori] best [whatever that means to the chooser] from this point forward? Does it matter whether that policy would benefit those who got us into this mess in the past?

No, we consistently don't, says history. Experience also suggests that rewarding bad behaviour has bad outcomes, so both backward-looking and consequentialist moralities would say that it does matter.

----
Mandos's assertion is a statement of what you might call the Lucas-squared critique: microeconomics is insufficiently microfounded. I.e., it is not founded on what we know of human behaviour.

You economical people would, I feel, benefit from reading or at least skimmming Fairclough's "Language and Power". It would help your treatment of political issues. Almost certainly one of your sociology or policy studies colleagues has a copy.

Greg Ransom: where in von Mises? Human Action?

Greg: Steve is saying one thing; I am saying something different. I have a different interpretation to Steve's. I'm coming at it from a different angle. I can't make my mind up on whether our two angles are mutually exclusive.

"Experience also suggests that rewarding bad behaviour has bad outcomes, so both backward-looking and consequentialist moralities would say that it does matter."

Rule Utilitarianism, for example, is an attempt to square the circle and reconcile the pure consequentialism of Act-Utilitarianism with a role for history. Ultimately, I think it's a failed attempt. But that would be a topic for a much longer post.

"Steve is saying one thing; I am saying something different."

Quite so. SRW is saying that people are essentially moral animals. He would rightly be skeptical of the sort of evolutionary/game theoretical argument I am about to describe.

What I mean is, can a pure consequentialism really stand up, even if we assume rational utility-maximizing actors? After all, managing expectations is one of your own favourite hobby-horses. Sometimes, in order to get outcome X, we have to promise (or threaten) that action Y will be followed by consequence Z. In other words, we have to promise to have a memory in future. How credible can that promise be if we have no memory today?

Phil: yep. That is one of the paradoxes of consequentialism. A good consequentialist would want to publicly reject consequentialist principles. You could imagine consequentialism surviving only as an evolutiionary "mimic" strategy, where they mimic deontologists, just as long as it pays to do so. Rather hard to prosletise a mimic strategy.

Mandos's assertion is a statement of what you might call the Lucas-squared critique: microeconomics is insufficiently microfounded. I.e., it is not founded on what we know of human behaviour.

It's even worse. Macroeconomics is insufficiently macrofounded---it doesn't take into account what we observe about societies at a large scale. For example, that the economically powerful are therefore politically powerful, and that they actively and collectively use that power to promote policies designed to instill fear and uncertainty in less powerful majorities. ie, economics doesn't seem to take into account the existence of top-down class warfare. We know it doesn't because economists seem to believe that the losers from free trade will be compensated, when from the point of view of the politically/economically powerful who implement free trade, the purpose of the exercise is precisely NOT to compensate them.

If there are economists who study these things, more power to them. Call me when they're in the majority, and are ready to critique things like central bank independence and support managed protectionism.

Jesus Huerta de Soto goes into this topic in depth in his book _Money, Bank Credit and Economic Cycles_:

http://mises.org/resources/2745/Money-Bank-Credit-and-Economic-Cycles

Mises discusses some of these issues in part three of _The Theory of Money and Credit_.

Wieser coined the expression "sunk costs" to articulate the "bygones are bygones" point.

I think you are mixing up the property / legal rights issue with the marginal valuation / choice issue -- Austrians from Menger, Bohm-Bawerk, Mises, and Hayek on down have always aware of the significance of both aspects of economic coordination -- and they've not seen any contradiction or incompatibility, just hard issues for economists to come to terms with.

Indeed, the significance of property rights and their relation to value theory and price theory was at the heart of the "Austrian" case against socialist calculation, a fallacy that Walsarians readily fell for, but Austrians saw through because of their distinctions between property rights, value theory, and price theory.

The bigger point, however, is that there is still lots of work to do, and folks like Bohm-Bawerk and Mises and Hayek only offer a sound starting point, and nothing close to a completed research agenda.

Mandos, it sounds like you are referring to "public choice". And the idea that economic losers are also political losers is part of "Director's Law".

What I'm suggesting is that economic choices are political ones and that there are political considerations that affect economic structure that are beyond the scope of economics. It sounds like public choice analyzes political choices from an economic perspective but that is only half the story. In other words, economic inequality as a form of political oppression.

Greg: "I think you are mixing up the property / legal rights issue with the marginal valuation / choice issue -- Austrians from Menger, Bohm-Bawerk, Mises, and Hayek on down have always aware of the significance of both aspects of economic coordination -- and they've not seen any contradiction or incompatibility, just hard issues for economists to come to terms with."

Actually, that's roughly where I would draw the dividing line too. But there is a tension between those backward and forward-looking perspectives. A puzzle, if not an outright contradiction. And there may be cases where that dividing line between the rules of the game (property rights) and play within the rules (choice and prices) gets a bit fuzzy. Yep. It's hard.

Here's a great post on both the macro and micro consequences of assuming that bygones will be bygones:

http://www.interfluidity.com/v2/983.html

Mandos: that's the exact post that inspired me to write this post. I link to it at the beginning!

But actually, I am really pleased to see you make that mistake. Because it confirms my reason for writing this post, from someone with an unbiased perspective (because you didn't start out with a preconceived notion that I was writing about what Steve was writing about).

Serves me right for not clicking all the links. *grumble*

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