Axiomatic Economics by Victor Aguilar: Are You an Austrian, Axiomatic or Mainstream Economist?

The Mises Institute has distributed a list of 25 questions which purport to sort out Austrians, Keynesians, monetarists and Marxists. Apparently, in their world view, axiomatic economists do not exist. Many people have taken this test and almost all of them have been told that they are 80 to 90% Austrian. This would imply either that Austrianism is far more prevalent in society than hitherto suspected, or that the test takers were hoodwinked.

Actually, it is the latter. The Mises Institute is conflating Austrianism with libertarianism. Most of their questions are about jurisprudence, not economics, and are really just asking if one is libertarian. The 80 to 90% represents the prevalence of libertarianism in society, or at least among people who visit their site. The purpose of the Mises Institute’s test is to convince libertarians that there is no other economic theory compatible with their beliefs, not to convert mainstream or Marxist economists, who are assumed to be irredeemable.

In contrast to the Mises Institute, my test asks only theoretical, not ideological, questions. I assume that everybody taking it is more or less supportive of capitalism and the free market. (If you are a Marxist, you might want to read my Critique of Montagne rather than take this test.) I intend to sort out followers of the axiomatic, Austrian and mainstream schools of economic thought. By “mainstream” I mean concepts that are widely taught in the universities, not just Keynesianism. Austrians tend to assume that the two terms are synonymous, which is not true.

In the following questions, when I ask which quotation you agree with, you may also interpret this as, which is most useful. For instance, if you are an Austrian and I define a term widely used by mainstream economists, I am not asking if you agree with the definition, in the sense that you feel that it is accurate, but if you agree that the concept is a productive one. If you agree with more than one quotation, choose the quotation that is more definitive of your viewpoint. In cases where axiomatic economics extends, but does not contradict, mainstream economics, I myself supplied the quotations representative of both the mainstream and the axiomatic position.

You may only take this quiz once a day.

Question 1
Which of these quotations about supply and demand do you agree with?

a) "Supply creates its own demand."

b) "Price and stock are more important than supply and demand."

c) "Demand creates its own supply."

Question 2
Which of these statements about interest rates do you agree with?

a) Interest rates are anti-cyclical; they are down in good times and up in bad.

b) Interest rates are pro-cyclical; they are up in good times and down in bad.

c) Interest rates are unimportant; it is credit limits that affect the business cycle.

Question 3
Is economic theory about wealth or income? Or are these concepts interchangeable, so the same graph can represent both?

a) "I assert that the stock of phenomena is more important than the supply because all of the decisions made regarding a phenomenon are based on its stock (how much of it is in existence), and not on how much of it happened to be produced in some arbitrary time period. Phenomena are the same whether they are produced in one time period or another. Most people do not know and none care what the supply of phenomena is, they are concerned with the stock; this week's or month's supply is only a small part of the available stock."

b) "The distinction between wealth and income is not just one of semantics. Most people define poverty to be low income, not a lack of wealth. It is unemployment figures, not asset figures, that are printed in the news media and it is national income that is maximized in IS-LM analysis… GNP is the flow of new products during the year or the quarter. A yearly flow of products represents a nation's income, not their wealth. This is why macroeconomics is referred to as 'income theory.'"

c) "The area of the triangle shows the totality of the successive stages through which the several units of original means of production pass before they become ripe for consumption. It also shows the total amount of intermediate products which must exist at any moment of time in order to secure a continuous output of consumers' goods… The time dimension that makes an explicit appearance on the horizontal leg of the Hayekian triangle has a double interpretation. First, it can depict goods in process moving through time from the inception to the completion of the production process. Second, it can represent the separate stages of production, all of which exist in the present, each of which aims at consumption at different points in the future."

Question 4
Which of these quotations about the capital structure do you agree with?

a) "The perspective that we want is from right now, at time zero, looking forward into the future. Thus, the Distribution of Wealth over the Capital Structure is defined from zero to positive infinity."

b) "The consumer's good is always the 1st order, regardless of how far back we push the analysis, even if we go back to axes carved by prehistoric men."

c) "There is no clear basis for the choice of weights for the PPI, comparable to the market basket that gives the weights for the CPI. As a result, there is much less interest in the monthly value of the PPI."

Question 5
Do all short-term credit instruments issued by unassailable parties function as money?

a) Maybe. "Existence alone is not a sufficient condition for credit instruments to be included in the stock of money; there must be an active secondary market for them."

b) Yes. "So long as a bank issues its notes only in the discount of good bills, at not more than sixty days' date, it cannot go wrong in issuing as many as the public will receive from it."

c) No. "Investors seek the intrinsic value of gold to protect themselves from inflation. When we refer to fiat money, we are referring to money that exists because the government declares it into existence. History has shown that fiat money, or 'faith-based currency' always fails."

Question 6
Which of these quotations best describes the foundations of economics?

a) "Axiom #1: One's value scale is totally (linearly) ordered. It is transitive, reflexive, anti-symmetric and total. Axiom #2: Marginal (diminishing) utility has three characteristics. It is independent of first-unit demand, negative monotonic and there is a limit to how slowly utility can diminish. Axiom #3: First-unit demand conforms to proportionate effect. Proportionate effect describes things that gradually increase over time, but as a proportion (percentage) of their current value."

b) "This axiom, the proposition that humans act, fulfills the requirements precisely for a true synthetic a priori proposition. It cannot be denied that this proposition is true, since the denial would have to be categorized as an action – and so the truth of the statement literally cannot be undone"

c) "A single point in time at which all production and exchange for all time is determined; a set of commodities – including those which will be produced in the distant future – which is known to all consumers; producers who know all the inputs that will ever be needed to produce their commodities; a vision of 'uncertainty' in which the possible states of the future are already known, so that certainty and uncertainty are formally identical."