How Empirical is Austrian Economics?

By On September 5, 2012 · 13 Comments · In Economics

Because many of here at BHL have an interest in Austrian economics, and many of our commentators probably have an interest in criticizing it, or perhaps don’t know much about it, I thought I’d share the news that I have the lead essay at the September Cato Unbound, which is on the “theory and practice of Austrian economics.”  My essay is “The Empirics of Austrian Economics” and I argue that Austrians are not mere “armchair theorists” and that Austrian methodology, including praxeology, is no barrier to doing good empirical research.  In fact, given our broader understanding of the kinds of evidence that counts as “empirical,” we might well do better empirical research than our mainstream counterparts.  The core of the argument:

But it is not the case, as Josh Barro recently argued, “that Austrian economists reject empirical analysis, and instead believe that you can reach conclusions about correct economic policies from a priori principles.” To say so is to misinterpret what Mises meant by the word praxeology and therefore fail to understand what he recommended as the appropriate methods for economists. It is also to rely on interpretations of what people like Mises and Rothbard had to say, as well as the pronouncements of various advocates of Austrian economics on blogs and Internet forums, rather than engaging with the professional research being published in the peer-reviewed journals by practicing Austrians. That research offers a very different picture of the way in which Austrian economics engages the real world. Finally, as that research demonstrates, modern Austrians distinguish among “empirical evidence,” “quantitative data,” and “statistical correlation” in such a way that allows all of them, though less so the third, to play a role in their work. Rather than being anti-empirical, modern Austrian economists are trying to open up the box of what counts as “empirical evidence” to include forms normally dismissed out of hand by the rest of the profession. Arguably, then, modern Austrians might well be more empirical than other economists, at least as judged by their professional work.

Commenters will include Bryan Caplan, George Selgin, and Antony Davies.  This should be interesting.

I’m also interested to see what my philosopher colleagues here have to say.

 
  • http://www.facebook.com/ArmavirMig Edgar Aroutiounian

    So excited about this

  • http://www.facebook.com/les.nearhood Les Kyle Nearhood

    I think that the Austrian theory as practiced by Von Mises could be rightly criticized as not using (indeed rejecting) rigorous empirical testing. In recent years I believe it has become much stronger due to both criticisms and borrowings from other schools of Economics especially the Chicago school.

    In fact there has been much convergence among all those economists who would classify themselves as free market oriented.

  • david3368

    As I commented on Caplan’s blog, the study of rational behavior under the restraints of formal and informal institutions, subject to human constraints on optimization and knowledge, seems more New Institutionalist than Austrian. In short, neoclassical. Wherein the praxeology?

    Why the reluctance to simply openly discard elements of Mises and Rothbard that were, let’s be straightforward, utterly wrong, and simply go full Hayek? Surely at some point it becomes undeniable that Mises did in fact argue that praxeology reaches utterly certain a priori conclusions, in contrast to the “neoclassical” economics which coincidentally reached similar conclusions but only held these conclusions to be contingent on empirics. So contemporary Austrian research is simply not Misesian. Mises was wrong and Rothbard was wrong. There, was that so difficult?

    Yes, it is quite true that active Austrian academics differ quite starkly from their would-be representatives on the Internet; a less polite way to put it would be that layman Austrians are often spouting what the academics recognize to be gibberish but refrain from saying as such out of politeness or political convenience.

    That aside: to be blunt, Austrian economics today is just neoclassical economics with an axiomatic requirement to abjure government intervention; this requirement is fairly explicit in e.g., Selgin’s work; regardless of actual or counterfactual outcomes, the result of human actions can only be regarded as legitimate if the actions took place with uncorrupted market signals, as a necessary condition.

    The nominal differences where contemporary Austrian method differs from neoclassical orthodoxy – e.g., a commitment to limited information and adjustment processes – are areas where Austrian research is quite willing to ignore as convenient, thank you very much. The neoclassicals responded to the 1970s general equilibrium fiasco by simply ignoring the problem of explicit adjustment and going for comparative statics all the time. But saying “by praxeology, let us define everything that happens through a market process as the outcome of equilibration” is not meaningfully different from the neoclassical “let us assume equilibration does, in fact, happen all the time, even if we can’t get it to work in theory”, and you can see the similarity when Austrians then go on to do research pretty much identical to neoclassical NIE stuff.

    • Fallon

      Mises was more into disequilibrium. Equilibrium is merely a construct; it cannot be known or really attained since change is always at work. Preferences, reality etc, is always in flux.
      The apriori nature of Mises’ is indeed fundamentally at odds with Hayek, Bartley, Popper, many other positivists, pragmatists, etc. This question of science is not a closed subject. I caution the urge to dismiss Misesian thought so easily i.e. to claim it a base means of rejecting government intervention, Quite the opposite; Mises rejected government intervention because that’s where the logic led him.
      It is the immensely complex nature of human relations and history, always imperceptible in entirety by a single human mind, that helps one understand the humble but truthful concessions in Misesian thought. Do neoclassicals, logical empiricists, Popperians, etc., want to admit this?

      • Fallon

        uh, grammar. sorry

      • david3368

        I think Caplan has correctly pointed out that the Misesian trope of complexity should give you agnosticism regarding any proposed government intervention or absence of intervention. Certainly not certainty, in any direction.

        But that is quite another topic, since Horwitz’s thesis is explicitly anti-Misesian.

        • Fallon

          From Horwitz’s post one cannot gather where he stands on strict apriorism v. Hayekian compromises. Am I to assume you don’t understand Mises’s conception of social data and experience?
          Why should one assume Caplan has successfully undercut Mises? One of Caplan’s basic stances, “Economics is primarily about incentives” has a rather aprioristic finality to it. Why choose that over a more fundamental, less deterministic, axiom of human action?

        • Fallon

          From his actual Cato entry, it looks like Horwitz is making the Hayekian plunge indeed. Very interesting because I have read Horwitz on the economic calculation question and it looked pretty darn Misesian.

    • George Selgin

      “Austrian economics today is just neoclassical economics with an
      axiomatic requirement to abjure government intervention; this
      requirement is fairly explicit in e.g., Selgin’s work.”

      Perhaps, David, you will enlighten me and others on this thread by showing where it is that I “explicitly” (or, for that matter, implicitly) take the approach you attribute to me. Or, better still, perhaps you will indicate where it is that you believe I have made a case against monetary intervention that I either do not or cannot support by appeal to reason and facts. If you cannot do so, your sweeping assertion amounts to nothing more than the worst kind of argumentum ad hominen–the kind that is as false as it is base.

  • Danny Sanchez
    • Fallon

      For you, even if there are empirically contingent phenomena, like diversity of resources and money, Misesian reflection places these things firmly within the deductive apriori structure. Whereas Horwitz is using “institutionally contingent” to shorten Mises’s deductive tower– and sort of build separate but related bodies of knowledge that fit Hayek’s compromise with positivism?

  • Fallon

    Prof. Horwitz,
    I am sure that subjectivism is built into the Misesian aprioristic explanation of economics. When conducting economic research, or history, of course Mises included subjectivity as a key component. “Only individuals act”. In this historical exploration, Mises realized that you can’t read minds. The economic historian needs understanding, verstehen (“Stove Top Stuffing? Verstehen!”) , reasoned conjecture using the best combination of sciences/knowledge available, to arrive at some estimation. There is unavoidable subjectiveness in the researcher as well as the objects being researched. This all can be found in Theory and History by Mises. So, I don’t the attempt at separating Mises from the subjectivity element.
    Second, your use of Popper’s “falsifiable” when characterizing empirical research seems like another attempt to show how different “modern” Austrians are from Mises– when the need for correct data is highly emphasized by Mises. Sounds like trying to make a mountain out of a mole hill. Especially when Popper v. Mises would more revolve around the nature of social evidence and economic data in the first place, and, of course, whether Mises’s aprioristic explanation has, if any, scientific validity…

  • Fallon

    Here is Prof. Joe Salerno’s comment to Sanchez’s response to Horwitz at Circle Bastiat:
    “Not only does Danny’s excellent post straighten out the profoundly confused essay by Steve Horwitz on Mises’s approach to economic theory, but it also highlights a strange phenomenon that is unique to modern Austrian economics as an intellectual movement. One would be hard pressed to find another eminent economist besides Ludwig von Mises who has regularly had positions attributed to him that blatantly contradict positions that he has clearly, emphatically, and repeatedly expressed in his writings. (Karl Marx does not count because he wrote in an obscure and convoluted style and expressed contradictory positions on various issues when it suited him throughout his career.)
    It is certainly true that that Friedman’s, Samuelson’s, Keynes’s, Ricardo’s, etc. economic doctrines have been subject to alternative interpretations and debates over their precise meaning. But rarely does it occur that someone attributes to these economists views that are flagrantly at odds with what they have plainly written, as Danny has shown Horwitz has done with Mises.
    I do not mean to imply that Steve deliberately or consistently misrepresents Mises’s views or that he is the only one to have grossly misrepresented them on occasion. In fact in the last several decades, views have been imputed to Mises–especially regarding the nature of entrepreneurship, the essence of the problem with socialist calculation, and the optimality of “monetary equilibrium”–that he has clearly rejected in his writngs.
    One can only speculate on the sociological reasons for this peculiar episode in intellectual history.”