'..subjective knowledge treats knowledge as being tacit, private, subjective, and decentralized..'

'..Hayek’s theory of subjective knowledge treats knowledge as being tacit, private, subjective, and decentralized. Hayek’s treatment of subjective knowledge is fundamentally opposed to any mathematical or formalized treatment of information. More specifically, the creative nature of entrepreneurial knowledge in the Austrian tradition contrasts with the objective and given type of information of the EMH.'

'Mirowski’s Confusion About Schools of Thought

The main problem of Mirowski is his confusion when it comes to the Austrian school and libertarianism. Mirowski regards most neoclassical economists as neoliberals (with some exceptions on the left such as Stiglitz or Krugman). Implicitly he also incorporates the Austrian school in the neoliberal camp. He even writes about “Hayekian neoliberals.” Yet, Austrians are neither neoclassical nor can many be considered to be neoliberal.

It is true that in some parts of his book Mirowski distinguishes between neoliberal versus libertarian, and neoclassical versus Austrian, but he does not apply this distinction consistently. This lack of consistency produces curious results.

For instance, he argues that Chicago’s efficient market hypothesis (EMH) formalizes Hayek’s theory of knowledge. This seems to imply that Hayek, or other Austrians, share the method of neoclassical economists, and belong to one and the same neoliberal camp.

Nothing could be further from the truth. Hayek’s theory of subjective knowledge treats knowledge as being tacit, private, subjective, and decentralized. Hayek’s treatment of subjective knowledge is fundamentally opposed to any mathematical or formalized treatment of information. More specifically, the creative nature of entrepreneurial knowledge in the Austrian tradition contrasts with the objective and given type of information of the EMH.

The EMH states that market prices are efficient as they incorporate all relevant information and assumes an objective kind of information that can be bought and sold on the market place. Yet, what is important is not the objective and given information, but rather the subjective interpretation thereof and the creation of new entrepreneurial knowledge in a dynamic process. Past prices are just historical exchange relationships that serve market participants to create new information. Mirowski distorts Hayek by stating that according to Hayek the market transmits the knowledge of what we need to know. Instead Hayek pointed out that market prices allow us to use the subjective knowledge of other market participants. The market does not automatically transmit the knowledge that we need to know, rather market participants need to discover and create what they need to achieve their ends.

There are additional problems with Mirowski’s mixing of subjectivism and Hayek’s theory of knowledge with EMH, CAPM, and the Black-Scholes model. There is nothing subjectivist in an equilibrium construct such as the EMH, the CAPM; or Black-Scholes. In all these mathematical models all relevant information is already given. They are static. Mirowski simply misses Hayek’s main point that entrepreneurs in a competitive market process discover new information. As the market is a process, the market is never perfect. Market participants may err or fall prey to illusion; Mirowski’s whole book is a prime example for that.

..

There has been tension from almost the very beginning between Austrians and neoliberals within the Mont Pelerin Society. As Mises wrote in the 1950s: “I have more and more doubts whether it is possible to cooperate with Ordo-interventionism in the Mont Pelerin Society.”

In retrospect and from the point of view of the Austrian school, it may be regarded indeed as a strategic error to found an alliance with the Chicago school and other neoliberals within the Mont Pelerin Society. As Austrians and neoliberals are united in the Mont Pelerin Society, authors like Mirowski tend to conflate neoliberalism with libertarianism and Chicago positions with Austrian ones. Instead of treating neoliberals as friends with a common cause, Austrians could have fared better by regarding neoliberals as enemies of their enemies; namely of full-blown socialism. Austrians could have made their ideological and methodological differences much clearer in a Mont Pelerin Society dominated by themselves and excluding Chicagoites and other neoliberals. Most of the attacks from Mirowski against the economics profession per se or against liberalism would have lost credibility. Then Mirowski would have had to direct his criticism only against the Chicago school and neoliberals.'

- Philipp Bagus, Why Austrians Are Not Neoliberals, January 4, 2016



Context

'...the differences between social science and natural science...' - Lawrence H. White

Subjectivism ... At higher levels - 'Alwash isn't afraid of dreaming...'

'A judgment of value .. a man's affective response to definite conditions of the universe..' - Ludwig von Mises