The Mirage of Mathematical Economics: A Lecture to the Oregon Libertarian Society
For the Libertarian, the ethical appraisal of market performance is admittedly subjective; However, such enumeration is perhaps most effectively accomplished by recognition of the degree to which economic outcomes reflect households’ voluntary choices. The thesis of this brief piece is that Libertarians should be wary of the reliability of overly complex macroeconomic mathematical models. Instead, the most precise measure of market success should be the extent to which consumer freedom is satisfied through uncoerced transactions as reflected in the absence of the systemic shortages and surpluses that we frequently observe in command economies. Quantitative analysts assessing the success of markets in ethically meeting consumer needs should focus on the prevalence of voluntary exchange (rather than coercive or state-initiated redistributive policies); price discovery; and firms’ liberty to implement innovative profit-and-loss mechanisms, rather than Keynesian macroeconomic aggregates like GDP, GINI, or per-capita income.
It is in this spirit that midcentury Libertarian theorist Murray Rothbard rejected GDP and other aggregate demand metrics as misleading indicators, arguing instead for assessing real savings, households’ capital accumulation won from abolition of income taxation, and the alignment of industrial production with demonstrable consumer preferences.
Like today’s Libertarians, Rothbard critiqued the Keynesian framework from an Austrian and monetarist vantage. Contemporary Austrian-minded theorists emphasize the triad of methodological individualism, subjective value theory, and the primacy of market mechanisms over state intervention in the monetary or industrial systems. Rothbard rejected the Keynesian focus on aggregate demand as the primary driver of economic activity, arguing instead that productive coordination occurs through subjective price signaling, self-regarding entrepreneurial calculation, capital structure adjustments, and inherently irrational human impulses (rather than through government-stimulated spending).
Keynesian models treat total spending as a mechanistic function of autonomous investment and consumption; Rothbard and modern Libertarians counter argue that demand is always a function of individual time preferences and the firm-level structure of production. They should reject the Keynesian liquidity trap (state manipulation of the money supply) and be critical of the marginal propensity to consume (proportion of income diverted to household spending) as macroeconomic artifacts that obscure microeconomic, firm-level, household-level business realities. From this vantage, recessions are not demand failures but structural misallocations caused by artificially low interest rates and credit expansion, which collectively distort intertemporal capital allocation. Market corrections occur naturally, necessarily, and automatically through liquidation and resource reallocation, making Keynesian stimulus both unnecessary and harmful.
Similarly, a Rothbardian, Libertarian assessment of the elasticity of supply and demand must emphasize the role of subjective valuation over mechanistic, macro-level mathematical models. Rothbard critiqued the neoclassical reliance on mathematical formulations of elasticity, arguing that real-world markets exhibit non-linear, context-dependent responsiveness rather than stable, predictable response curves. For Rothbard, supply elasticity must be contingent upon entrepreneurial foresight and the structure of capital rather than a static function of price level. Similarly, demand elasticity is shaped by consumer preferences, firms’ perceptions of market uncertainty, and heuristic interest rate expectations, making elasticity modeling impossible to generalize across complex and dynamic macroeconomies.
