I believe that Austrian economics is a sensible way of approaching current economic issues, it is not backward-looking and it can make sense when mainstream economics does not. Austrian economics may be clustered by economists who emphasize ideologies. These ideologies actually differ, but their study is not the purpose of this book.
Austrian economics is also often criticized as being hostile to empirical research. The studies in this book prove the contrary. The purpose of this book is to show that Austrian economics provides an interesting approach to most any conceivable subject in economics, and this is demonstrated by the table of contents.
We have, using the index of the Journal of Economic Literature, tried to cover each sub-discipline of economics that is currently taught at most Western universities. This provides for an impressive compendium that is meant to be a reference source for researchers who may have a particular research project in mind, but cannot readily deal with mainstream theories in their effort to understand a particular programme. These graduate students or researchers may find a framework for their own research design in their own studies.
If it drives particular research programmes, a free market of ideas should ultimately divide the grain from the chaff. We are interested in harvesting the corn. It is true, and it cannot be contested, that a lot of what passes for Austrian economics is published on the fringe. This is true for any economic approach one can think of. Even the current mainstream of economics is tainted in this way Stigler This problem can only be resolved once the free competition of ideas leads to a better refinement of propositions, models and solid conclusions. It is even xvi 2 3 Preface conceivable that a Marxian-Austrian perspective could lead to particulars that cannot be otherwise captured.
We do not have an AustrianMarxist contribution in this collection, but I would never have hesitated to include one, had I received one. As regards method, in textbook renditions it is often said that the Austrian approach stood for the deductivist method, while its conceived counterpart, the so-called historical school, stood for inductivist methods. Nothing could be further from the truth. Menger, although he started from observing financial markets as a journalist, was not empirically minded. Hayek, on a Ford Foundation grant, observed empirical facts in order to determine business cycles.
The difficulty, in my mind, does not lie in the method. This can only be done on the basis of very careful case research.
Most Cited Austrian Economics Publications
In this sense, there is little disagreement between the Austrian school and the mainstream. As for the third issue, the contributors to this volume have no problem with empirical work, and hence the case can be laid to rest. March References Schumpeter, J. Stigler, George J. In the eyes of the rest of the economics profession it appeared that modern Austrians were unable and perhaps entirely unwilling to provide any specific analytic tools that might help predict and control the outcome of the market process.
This, however, is a matter of personal preference and not one of logical necessity. Indeed, there is an applied side to the teachings of the modern Austrian school that sometimes is unnoticed. I shall emphasize this aspect of the Austrian contribution here. At the outset, I readily admit that Austrian writers have not been kind to those in the profession who claim to have derived models that can predict the future course of market activity in such detail that profits can be made.
Modern Austrians consider such claims mostly ill-conceived, or, even worse, fraudulent see Skousen Austrians have most consistently ridiculed the pretensions of statistical economists and econometricians who, whether for private gain or for 4 Laurence S. Moss media reputation, declare that they can estimate some specific market rate, such as short-term interest rates, with enough accuracy to guide business decision-making or in some circumstances orchestrate national economic planning Hayek 23—24; Mises ; cf.
Vaughn This war against arrogance and pseudo-science constitutes perhaps the greatest of all the practical achievements of the modern Austrian school. Unfortunately, it has contributed to the reputation of modern Austrians as mavericks in the economics profession. This verdict is particularly harsh, and in this chapter I shall offer a more balanced view. The first section takes a careful look at statistical economic research and offers evidence that Austrian theorizing has not emerged in a historical vacuum.
Indeed, Austrian economics can be appreciated as a defensive reaction to the long struggle against ferocious price inflation, first in Central Europe and later, in a less virulent form, among all major industrialized nations. The second section returns to the problem of hawking economic research for business consulting purposes and highlights an inner tension that exists within modern Austrian economics over precisely this problem, the practical significance of economic knowledge.
The third section outlines the varieties of modern policy analysis and at the same time distinguishes the intentionally limited focus of the Austrian school from the wider interests that mainstream economics offers. In the final section, I offer some concluding remarks. Statistical economic research Modern Austrians stubbornly refuse to join the legions of professional economists who search for stable empirical economic relationships among the truckloads of economic data that are now available to researchers.
Economists who pretend these constants exist and apply for funding to try to hunt for them are committing an elementary blunder. In his Nobel lecture, Hayek criticized those in economics who try to mimic the natural scientists by employing methods that are quite inappropriate to the study of complex social phenomena. Elsewhere, however, Hayek a admitted that it is appropriate when studying complex social phenomena to recognize that certain patterns or sequences of events tend to occur in similar situations.
They admit that economists can predict certain patterns of market activity and anticipate certain broad sequences of events. If they can do this, then of course the Austrians can go one step further, and provide some analysis and discussion of the linkages between statistical regularities and the underlying market processes at work. While Austrians make much of their differences with the econometri- The modern Austrian school 5 cians, there is nothing about the Austrian brand of methodological discussion that rules out the possibility that a major discovery in statistical research will help improve our understanding of the market process and aid us in a search for new statistical patterns.
This statement requires some clariffication. The place to start is with Mises himself. Early in his career, Mises flatly denied that there was any sense in trying to express the relationship between money and prices in the form of a simple deterministic equation. Mises  Still, Mises agreed with Fisher that money and prices were connected in some systematic way, with changes in the money supply causing prices to change. Observing that individuals hold cash balances as part of their daily routine, Mises  — offered a subjectivist account of how private efforts to adjust cash balances at a time when nominal balances are increasing throughout the relevant currency area lead to price rises.
Mises assumed that most responsible political leaders found inflation to be quite unacceptable. Using a broader definition of the money supply that included bank deposits subject to check, Mises evaluated the large variety of institutional reforms to identify those that would make it difficult for the money supply to rise and inflation to follow. This realization led Mises to a prescient analysis b — written in of the connections between political parties, politicians, credit-financed booms and the subsequent economic crises that follow.
The historical record in Central Europe, seemed to contradict the alleged connection between money and prices. He pointed to the critical role expectations play in markets. According to Mises, when an episode of inflation has proceeded for some time, people make commitments to pay prices according to the criterion of what future prices will turn out to be. They believe that they will have enough cash on hand to meet those extra cash obligations because they expect their private cash balances to rise along with the higher prices.
This explains political lobbying to keep the inflation going, so that many can meet their contractual commitments and avoid financial embarrassment. Mises went on to suggest that a statistical time-series plot of the ratio of some index of the quantity of money to prices would show a downward trend during prolonged inflationary periods. According to Friedman, Mises claimed that the more prolonged the inflationary boom, the more severe the subsequent business crisis.
Friedman claimed that the opposite relationship is in fact true, as he himself demonstrated in earlier published work. Nor did Friedman offer any opinion on the role Mises played in promoting sta- The modern Austrian school 7 tistical research in Austria by his association with the Austrian Institute for Trade Cycle Research. Suffice it to say that the evidence, while mixed, certainly provides no basis for the claim that modern Austrian school members are opposed, as a matter of methodological principle, to careful statistical analysis.
Let me conclude this section on an even more constructive note. A statistical pattern has come to light that may offer fertile ground for Austrian research. William J. Baumol, Richard R. Nelson and Edward N. Wolff economists not associated with the Austrian school have pointed to a surprising statistical regularity.
Apparently, there is a tendency among the industrialized nations of the world to grow increasingly homogeneous with regard to technology, productivity, and per capita income. It seems to me that the Austrian theorists now have a dramatic statistical illustration of how quickly and effectively the market system encourages its participants to utilize information and apply it in valuable ways Hayek ; Thomsen This is what now happens with accelerating speed among the industrialized nations. It is proving increasingly difficult for one trading nation to maintain a significant productivity lead over the others.
This rapid utilization of knowledge has now become a veritable global phenomenon. To the best of my knowledge, modern Austrians have not as yet taken up this topic for research and analysis. Austrians can explain what institutions serve to promote this development and its probable impact on material progress.
When they do this work — and there is no reason why they should neglect such international developments — they will be following the precedent set by Ludwig von Mises in his monetary debates during the interwar period. Again we see statistical economics and Austrian economic theory developing side by side in mutually supportive ways. Practical advice sold to business We have seen that modern Austrians do not and should not rule out the possibility that broad statistical relationships both exist to suggest 8 Laurence S.
Moss conceptual innovations and can themselves can be explained in terms of market processes. Austrians remain skeptical if not contemptuous of those who pretend to have the power to discover lucrative arbitrage opportunities in the market and then try to sell this information to others. Such discoveries are usually the province of entrepreneurs, and it is not likely that standard statistical research can produce any information about where economic profits can be found. Statistical categorization necessarily strips economic information of its distinctive or local aspects and therefore of much of its relevance to making money.
In addition, by the time the statistical series have been published, individual actors in the chain of production will have had an opportunity to exploit these patterns and thereby destroy whatever market value the information might originally have had. Mises — and later Kirzner analyzed the type of mental and conceptual activity involved when the entrepreneurial function is exercised in market settings. From a logical point of view, if the modern Austrian theorist were to foresee this series of events, the possibility exists that entrepreneurs who take up the study of economics can themselves profit from this knowledge cf.
Mises — Consider one important example. Furthermore, the Ricardo effect provided the ultimate explanation as to why government attempts to prolong the boom phase of the cycle indefinitely must end in failure. According to Hayek, if the credit expansion boom does not come to an end sooner for some other reason, it must come to an end when consumer product prices advance ahead of wage and resource prices. The Ricardo effect lowers real wages and encourages a shift toward labor-intensive methods of production.
A lowering of the real wage of labor makes The modern Austrian school 9 short-term labor-intensive projects appear to be more profitable than long-term capital-intensive methods of production. The Ricardo effect may account for the sudden wave of bankruptcies among the large fixedinvestment projects that occurred toward the end of many nineteenthcentury business cycles.
The resulting rise in the capitalized value of the business organizations would bring an earlier end to the boom itself. By , Mises began to admit that this consequence was possible Mises The action of self-fulfilling prophecies may indeed unravel each and every one of the so-called laws of the market. Some students of Austrian economics claim that the credit expansion business cycle has itself become a phenomenon of the past.
In the end, the only pattern prediction that endures is one that claims that pattern predictions themselves tend to vanish! Policy advice to policymakers Austrians are not shy about offering practical advice on matters of public concern. Surely the growth of the modern bureaucratic state has been viewed with alarm by those fearing the threats to liberty posed by state power more than they fear threats posed by unchecked market power in the hands of cabals, or cartels or by the general machinations of business Rothbard ; cf.
Mises I shall restrict myself here to the strictly twentieth-century concern of the Austrian school: that the unprecedented growth of national governments may have a negative effect on the development of those economic institutions that themselves contribute to rising living standards. Such a juxtaposition of norms and science is, in short, an awful fraud of the public trust. As we shall see, Austrian economists insist 10 Laurence S. Moss that where something cannot be scientifically proven to be true, the economist is forbidden to speak. Among modern economists this normative position, which acts as a self-imposed gag order on what the Austrians can contribute to public debates, is seen as quite eccentric.
Instrumental critiques Consider a law that promises to increase the supply of housing by holding down rents. They are wrong-headed because they lead to results that are precisely the opposite of those originally intended. This type of policy analysis, one that passes judgment on the suitability of certain means to stated ends, is the crux of much modern Austrian policy analysis.
Unfortunately, not all governmental laws and regulations can be criticized in this way. Efficiency critiques Some government interventions do actually achieve their intended results. For example, command and control clean-up requirements at industrial water dump sites do actually make the areas better for recreational lake users Frederick Also, some recipients of government welfare actually do use the funding to provide for the care and comfort of dependent children Murray Only a madman would deny that sometimes legislation does achieve its stated mandates.
This does not mean that government laws and their implementation are unassailable on other grounds. Indeed, Austrians point out and describe alternative methods of intervention that have been used in the past to achieve similar objectives. The comparative study of different institutional reforms allows a comparison of the pros and cons of the different methods. Finally, modern Austrians spell out in shocking detail the political consequences of some interventions, such as those that propose to replace the market with national planning Hayek Other interventions, such as direct controls to overvalue a local currency, sometimes lead to borderline body searches and household raids that cause lovers of individual liberty to recoil in disgust cf.
Yeager All of this and more constitutes a contribution to policy assessment, but none of it allows efficiency comparisons. Efficiency comparisons are what mainstream economists do best: a dollar comparison of one intervention to another in order to determine which achieves the policy objectives at the smallest opportunity cost. Much of the clamor for government intervention in the twentieth The modern Austrian school 11 century stemmed from one individual or small group of individuals trying to extract subsidies from other individuals.
Unfortunately, according to the modern Austrian school, such a comparison of psychological states is invalid because interpersonal comparisons of utility are impossible to make Rothbard ; Pasour After World War II the scientific economic journals filled with articles of this sort and the field of welfare economics grew in stature Mishan Generally speaking, modern Austrians have not contributed to this literature. Suppose the problem is to compare a government-run rent subsidy program with another program involving the construction and provision of public housing by the government.
Generally, an economist would propose a measure of utility gained and resources consumed and then go on to recommend the program that promised the greatest benefit—cost ratio. Such constructions rely on dollar prices as measures of utility and perform a variety of heroic arithmetical operations in which interpersonal comparisons of utility are made with something approximating complete abandon Mills Unable to offer an efficiency critique, modern Austrians choose to remain outside the major policy debates that fascinate many mainstream economists.
Moss A scientific welfare economics According to one line of analysis that has taken root among adherents of the Rothbardian branch of the Austrian school, no government intervention can ever be scientifically demonstrated to have raised social welfare Rothbard Those who derive benefits from the government intervention will naturally find their utility levels raised.
Unfortunately, interpersonal comparisons of utility cannot be made on any precise quantitative basis and so therefore no act of government intervention can be said with any degree of scientific precision to have raised social welfare ibid. It is argued that the opposite conclusion can be reached when it comes to voluntary market trade. Market exchange would not occur unless both parties expected to gain utility. Since market activity is mostly based on mutually advantageous trading, only market activity can be said with any degree of scientific precision to raise social welfare.
This sweeping conclusion does not involve any interpersonal comparison of utility and therefore, according to its proponents, it is not an efficiency critique and hence passes scientific muster. The first version of this argument appeared in a remarkable essay by Murray N. Rothbard Two decades later, I pointed out that from a logical point of view one could not reach the implied conclusion that the removal of some forms of government intervention would invariably make everyone better off Moss The reason was that the absence of a coercive intervention does not automatically lead to a world of voluntary trading.
In the absence of government hegemony in the marketplace, gangs competing for merchant contributions may emerge in the vacuum created by the destruction of the central taxing authority. Indeed, the extent of felonious behavior in the former Soviet Union may be a dramatic example of this phenomenon. I insist that any thinking and feeling person can reach such a conclusion even if interpersonal comparisons of utility are impossible. As David L. Reasonable thinkers can conclude that the suffering of the many outweighs the joys of a few even if a precise scientific measure of net utility gain cannot be made.
Comparative institutional analysis Modern Austrians have excelled at the careful analysis and evaluation of contemporary institutions. The list of institutions evaluated by modern Austrians is thus quite long see Mises ; Hayek ,  , ; Rothbard If there were a single political attitude that permeates Austrian policy analysis, it would be this: Austrians distrust broadly popular democratic processes because they fear that the voters are doomed to place their short-run private interests above the policies that are needed to sustain the market system.
Constitutional reform is designed to limit the excesses of popular democracy by restraining popular emotions from voting out the basic framework and legal structures needed to support a market system. A survey of all this important work is beyond the scope of this chapter, but it will be suffficient to summarize the policy component of this work as follows: Modern Austrians have been and remain keenly interested in the problem of how incentives come to be or fail to be aligned within and between these large institutions. Through the judgments they have made about this phenomenon, they have provided rich insight into our understanding of contemporary economic history.
Under the nineteenth-century international gold exchange system, local political leaders were given a powerful excuse for not capitulating to the infflationary fi f nancing of government programs. Politicians could blame the international community for preventing them from catering to the interests of local political parties that wanted to redistribute income by effecting artifficially contrived changes in the quantity of money. The Austrians explained how large budget defficits fi f nanced by money-supply creation would diminish gold reserves in the banking system and threaten fi f nancial default and currency devaluation.
Mises and Hayek predicted that once the reigns of the gold-exchange 14 Laurence S. Moss standard were loosened, especially as happened after World War II, national governments would end up under the control of leaders who would fi f nd infflationary ffinance irresistible see, for example, Hayek It has been over a half-century since the end of the war and the installation of the International Monetary Fund.
It has been more than a quarter of a century since the U. The feared hyperinfflation has not yet arrived, but neither have clusters of prices moved in any other way than steadily upward in the United States and also among other industrialized nations Yeager The problem national governments face is not whether to accept a mild infflation but rather how much infflation is politically feasible because, whatever its conceptual merits, defflation has become politically unacceptable.
The proponents of the Austrian school have been the veritable chroniclers of and astonished witnesses to this development. It is well known how Hayek labored to compare the consequences of monetary nationalism i. Here Hayek departed from Mises, who rested his hope in a return to full-bodied gold coins.
The wisdom that modern Austrians have brought to these questions is quite literally unsurpassed in the policy literature and constitutes another important contribution of the school to practical problem solving. Conclusion The conclusion I reach is quite defensible and I hope entirely persuasive. It is clear that characterizing the modern Austrian school as being entirely embroiled in methodological discussions and having little to contribute to the leading policy problems of the day overlooks the historical record.
It is somewhat misleading to claim that the modern Austrian school asks interesting questions but by implication lacks adequate tools to provide proper answers to these questions Vaughn As I have demonstrated here, important questions have been raised, and important answers have been offered. This position gives no place at all to historical understanding and common sense, which are also pertinent to our understanding of the linkages between government intervention and private economic welfare.
It makes it difficult for them to inflate. Unfortunately, Mises makes no mention of this controversy in his short autobiography a. Mises credits himself and his colleague Wilhelm Rosenberg with preventing the collapse of the Austrian crown in ibid. Mises objected to the use of prices indexes ibid. The price he used was the price of gold — expressed in local currency — the price established in 16 Laurence S. Moss 9 10 11 12 13 14 15 16 17 the international market. Also see Skousen On the statistical evidence and its relationship to the Ricardo effect, see Tsiang A fuller analysis of this problem remains to be written; see Specter According to Richard N.
Modern Austrians favor neither inflation nor deflation. They prefer whatever the ordinary market process happens to bring. Hayek stubbornly refused to allow the authorities to depart from the market situation in his Prices and Production Compare Rothbard See Moss and MacDonald 98— References Baumol, William J. Coase, R.
Dolan, E. Kelley, New York. The modern Austrian school 17 Frederick, K. Portney ed. Friedman, M. Hammond, D. Samuels and J. Hayek, F. Hayek, ed. Sudha R. Shenoy, Institute of Economic Affairs, London. Hoppe, C. Rothbard ed. Kirzner, Israel M. Moss Lachmann, Ludwig M. Lachmann, Ludwig M. Walter E. Langlois, Richard N. Malkiel, Burton G. Newman, M. Milgate and J. Eatwell, Macmillan, London, pp. Mills, Edwin S. Greaves ed.
Mishan, E. Moss, Laurence S. Tullock ed. Mueller, Dennis C. Pasour, E. Prychitko, David L. Robbins, L. The modern Austrian school 19 Rothbard, Murray N. Senholz ed. Rothbard, Murray N. Schelling, Thomas C. Rockwell, Jr. Thomsen, Esteban F. Tullock, G. Vaughn, Karen I. B Schools of economic thought and methodology 2 F. I shall show that even right at the start of his career, Hayek had different methodological ideas from those of his mentor Mises.
I will defend the thesis that he derived his ideas on the philosophy of science from Mach and the logical positivists. Hayek wrote only one work, The Sensory Order , that was devoted exclusively to the theory of knowledge, although it was to give a basis to theoretical psychology. For the rest we have to manage with his casual remarks and allusions, particularly in his early work.
This hesitancy was born out of concern for the empirical basis of economics — that is, the facts of the social sciences in general — rather than the wish to achieve an indisputable aprioristic foundation. In order to make this plausible, he distinguishes various 24 G. In this article, Hayek introduced the distinction between what one now would call objective, scientific knowledge and the subjective or private knowledge of economic subjects — such as their knowledge of their own preferences and local situations.
Against this background the thesis of the U-turn seems very plausible. Nevertheless, the relationship between mentor and pupil proves nothing concerning the specific contents of the thesis: that is, their methodological descent. In this respect I am inclined to protect Hayek against his critics. As will be shown, Hutchison does not provide convincing proof to support his thesis. The theme of freedom was unfolded ever more consequently — first in the economic field and later in studies in philosophy, politics and the history of ideas. The neo-Austrians Kirzner and Rothbard even go a step further.
Without a doubt, Hayek was challenged by his mentor Mises and made sensitive to problems that kept him occupied. In his festive speech in F. Apparently Hayek only gradually became a supporter of the liberal ideas of Mises. However, it can be questioned for two reasons whether Hayek also adopted the methodological ideas of his mentor.
At that time the methodological ideas of Mises were not crystallised out in the least. Furthermore, Hayek came from a totally different, more scientific intellectual climate. The shock experience of the collapse of the Danube monarchy induced him, as he stated in an interview for Video Arts Television , to focus his scientific interest not on physical or biological questions but, contrary to the family tradition, on political and economic issues.
Not only was my first technical training largely scientific in the narrow sense of the word, but also what little training I had in philosophy or scientific method was entirely in the school of Ernst Mach and later of the logical positivists. In addition, this hypothesis corresponds with his critical stance against scientism, because, he continues: Yet all this had the effect only of creating the awareness, which became more and more definite as time went on, that, certainly in economics, all the people who are universally regarded as talking sense are constantly infringing the accepted canons of scientific method evolved from the practice of the natural sciences.
There seems to be a gradual rapprochement with Mises rather than a farewell. Should one therefore not speak of a convergence rather than a U-turn? In his opinion Hayek wanted to save static equilibrium theory and to maintain the assumption of Alwissenheit. These points refer to theoretical rather than methodological issues, and they are incorrect on theoretical grounds. Subsequently, an elastic money supply forms the sufficient condition for the trade cycle phenomenon.
Thus, the actors are not omniscient. In whatever way this theory is further assessed, it assumes neither Alwissenheit nor a static approach; it has an intent contrary to the one Hutchison imputes to it. This will be shown more extensively with quotations. We will first examine the methodological aspects, which Hutchison almost completely ignores. Economists have to do with the equilibrium theory; they have no better alternative.
Statistical investigations are not theoretical, but descriptive. Scientific predictions are conditional; they say what will necessarily F.
This is why statistical extrapolations, for example of economic trends, are scientifically inadequate. They lack a theoretical explanation based on necessary interconnections. A theory can be incorrect owing to a logical deficiency or because under the given conditions it explains something different from what we observe. At most a theory can be found to be logically sound and empirically not untrue. After all, verification is only possible in a negative sense. After all, in what way could a necessary interconnection be substantiated on contingent grounds? Conditional predictions mainly have a practical meaning.
They allow us to intervene so as to affect the conditions in a purposeful way. Whoever reads these propositions will be struck by their similarity with the present hypothetico-deductive model of science. Furthermore, it is significant that the method of verification is treated with a caution that reminds us of Popper rather than of logical positivism.
Did Hayek anticipate the ideas of Popper? This may seem to be the case, but the simplest explanation for their methodological resemblance is that both base themselves on Mach. Later, 28 G. In his compellingly written Knowledge and Error  ; KE for short , Mach argues that errors are no regrettable aberrations of scientific research, but a source of discoveries and thus of the growth of knowledge. Errors are connected with our ignorance, with the incongruence between theory and experience.
According to Mach, the development of scientific theories shows a smooth transition with our daily experience. The patterns of expectation that we form on the basis of experience are improved by the concepts and theories of the natural sciences. A law of nature forbids certain expectations. It is not a prescription for nature, as Kant wrongly thought, but rather a restriction on our expectations with respect to the course of natural events KE: ff.
The aim of science is to try to organise our thoughts as economically as possible, both mutually and in relation to the facts. The first aspect is a matter of logic and mathematics; the second is a matter of concept and theory development. We should not accept the incongruence between theory and experience, but regard it as an opportunity to make new discoveries. These ideas on the method of science appear to have inspired not only Hayek, but also Popper. Mach is undoubtedly also part of these common roots.
The difference of opinion with Mach, which is mainly fought out by Popper in footnotes, focuses on the question of whether theories are merely instruments of thought, which can predict adequately or inadequately, or descriptions that can be true or false. Theories are descriptive, universal hypotheses; they can be true or false although we can never establish their truth with certainty.
An instrumentalist is not concerned about the question whether his or her assumptions are realistic and whether they are able to explain the observed phenomena. Hayek states this as a requirement: the theory has to be able to explain the empirically observed phenomena even without a residue. General equilibrium theory GET offers no explanation for the phenomenon of the trade cycle, although it claims to cover the entire range of economic phenomena GK: 2.
This is, according to Heimann , like squaring the circle. For this additional assumption he consults the monetary theory of Mises, though not without criticism. This does not fit in with the reality of the modern monetary and credit system. The monetary system is the absent assumption that will have to be built in the static theory in order to be able to deduce the trade-cycle phenomena from it. For the same reason, Hayek MT: 93 does not want to save the equilibrium theory, as Lowe does in an instrumentalist sense, by reconciling himself to the discrepancy between the closed theoretical system and the supposed openness, elasticity or indefiniteness of the economic system.
Huussen The endorsement of the incongruence between theory and experience boils down to a sacrificium intellectus cf. MT: Mill and F. However, this empirical apriorism is definitely no apriorism in the neoKantian sense of the word, as found with Mises Huussen He reasons: physicists can experimentally test inductively established hypotheses on causal relations. Economists cannot. A view from an Austrian window, in L.
Lachmann, Expectations and the Meaning of Institutions, edited by D. Lavoie, London and New York, Routledge, , pp. Moss , ed. Backhaus, London and New York, Routledge, pp. Murphy n. Porta , David Ricardo: la sistemazione teorica della concorrenza e del mercato, in Il pensiero economico moderno, edited by G. Becattini, Torino, Utet, pp. Rizzo, Lexington, D. Heath and Company, pp. Roncaglia , Le scuole sraffiane, in Il pensiero economico moderno, edited by G.
Shackle , The Years of High Theory. Sraffa , Production of Commodities by Means of Commodities. Sylos Labini , Torniamo ai classici. Vaughn , Austrian economics in American. The migration of a tradition, Cambridge, Cambridge University Press. Login Create Account.
Ludwig M. All papers reproduced by permission. Contradicting Mises, it has been suggested and rudimentarily implemented to amend thymological Verstehen with other empirical means to grasp intentions, meaning assignments, and value judgements. Rizzo ; Pavlik ; Linsbichler In any case, apriorism remains restricted to the praxeological compartment of the social sciences.
Neither Mises nor most of his contemporary successors are proponents of extreme apriorism regarding the extent dimension. We will examine the two remaining dimensions of extremeness, kind of justification ii and certainty iii , too. These dimensions do not depend on the content of the fundamental axiom, but on its justification. Thus we will return to them at later points. Kurrild-Klitgaard , pp. However, most interpreters inside and outside the Austrian School do agree that the justification for the fundamental axiom rests on intuition, pure intuition, pure reason, or rationalist introspection.
The standard reading of the justification of the truth of praxeology therefore qualifies as extreme apriorism with regard to the kind of justification ii dimension and the certainty iii dimension. Scheall a. Among contemporary philosophers and economists, the idea of synthetic judgements a priori and more generally speaking any form of extreme foundationalism based on intuition is hardly rated as a tenable position.
Accordingly, the extreme apriorism of the standard account of praxeology has been harshly criticized. Blaug ; Samuelson ; Hutchison ; Radnitzky Even benevolent commentators tend to be sceptical or ascertain a need for clarification White ; Zilian ; Hayek a ; Caldwell ; Nozick Nevertheless, extremely aprioristic justifications of praxeology by Mises, Rothbard, and others have hitherto remained dominant.
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Before we present our conventionalist alternative in Sect. Mises once puzzled Kirzner by a remark in private conversation to the effect that the fundamental axiom can be justified by observation. Kirzner , pp. A fallible observational statement is not eligible as a fundamental axiom of praxeology. Tokumaru suggests interpreting the fundamental axiom as a methodological rule or a methodological principle.
Strictly speaking, a methodological rule is not an axiom or a theorem of a theory and hence has no truth value, but normatively determines how to apply a theory and how to adapt truth values of parts of a theory. Therefore, the interpretation as a methodological rule in a strict sense does not yield an appropriate epistemological role for the fundamental axiom of praxeology.
Thus, genetic or psychological a priori must not be confused with a priori truth. Popper — , pp. We conclude Sect. The portrayal of their positions will inevitably remain somewhat cursory due to open interpretational problems regarding their conceptions of the a priori and their relationship to praxeology. The secondary literature on these problems contains vehement exegetical disputes and the acknowledgement of research lacunae. He does not primarily aim at an encompassing theory of human action but engages in piecemeal situational analyses and pattern predictions.
According to him, a priori reasoning cannot be extended to social situations with several actors. However, the exact relation between their endeavours is subject to discussions. Their approaches differ, among other things, in focus. Mises is fully aware that thymology and its method Verstehen are indispensable for the social sciences, but his own work focuses on a priori true praxeological theory. Firstly, the actor himself can attribute meaning to his behaviour.
Secondly, social scientists and laymen in day-to-day life can attribute meaning to the behaviour of other actors. It seems that to be a prerequisite of thymology is the main function of the a priori in his account. Mises recognizes this function of the a priori but is not predominantly concerned with it. This contrasts strongly with praxeology, since ideal-types of action do not aspire to apply universally to every human action with necessity.
However, these ideal—typical constructions lack the universality and necessity of a fundamental axiom of praxeology. Situatedness of action and incomplete knowledge of actors are two cornerstones of Austrian economics, but Lachmann takes them a step further. According to him, economics must incorporate the fact that oftentimes knowledge is lacking altogether. This is a key factor why Lachmann ultimately arrives at different conclusions than Kirzner and Mises, regarding for instance the equilibrating tendencies of economic systems.
According to the latter, we can learn a lot from Husserl, if we seek to become wiser, but nothing in order to establish the truth of a fundamental axiom of praxeology. Mises This paper primarily addresses the allegedly most extreme form of apriorism in the Austrian School, praxeology. If the aprioristic parts of the theories of Hayek and other Austrian economists are indeed more moderate, then a transfer of the proposal in Sect. In Sect. More specific or even slightly divergent definitions exist, but our characterization is in line with most historical and contemporary versions of conventionalism.
We eventually discuss previous traces of analyticity and conventionalism in the writings of Austrian economists Sect. We can characterize a conventionalist epistemological position in general as an approach to dealing with a theory in the face of new evidence. A conventionalist fixes the truth value of at least one sentence of her theory, at least for the time being. For this conventional part of a theory, neither observation nor intuition are a critical standard by which to falsify, verify, confirm, disconfirm, or corroborate it. This decision might for instance be justified by myriads of observed white swans and the importance of this law for further theoretical development.
Now reports of a black swan reach the conventionalistically minded ornithologist. A first immunizing strategy is to simply discard these reports. The sentences which describe black swans and thereby contradict the convention might be based on optical illusions or political bias. In the case of praxeology, potential findings that would contradict theorems of praxeology necessarily involve statements about the preferences, knowledge, goals, or intentions of individuals.
According to Mises, such statements can only rest on thymology and are therefore highly uncertain. Therefore, thymological statements are prime candidates for being discarded in case of doubt. In general though, the first immunizing strategy facilitates dogmatic tendencies.
In comparison, the second immunizing strategy is far less problematic, partly due to its higher transparency. Thus, we will focus on it in the remainder of the paper.
In a conventionalistic theory, not all terms are fixed in their meaning by applicative definitions. Oftentimes, conventionalism seeks simple laws of nature, perhaps at the expense of very complex and changeable applicative definitions for the terms of the theory. Now let us apply the second immunizing strategy to our swan example, i.
Howbeit, the truth value of at least one sentence of a conventionalist theory is not directly determined by observation or intuition, but by a methodological decision. A sentence which is true by convention is kept true by adapting the meaning of the terms involved accordingly if need be. Two necessary features of conventionalism therefore are in any case: I The conventions could in principle have been chosen differently, i.
II The conventions are not justified by observation or intuition, but by pragmatic arguments for the superior expediency of the resulting theory or research program. This paper not only argues that praxeology can be defended conventionalistically I and II. Moreover, we claim that praxeology qualifies for one of the least controversial versions of conventionalism. In order to do so, a defence of the fundamental axiom must additionally meet a third condition: III Conventions are restricted to sentences that do not exclude any potentially observable 33 states of affairs.
We propose a shift from a synthetic fundamental axiom to an analytic one, analogous to the elimination of judgements which are allegedly synthetic a priori from the disciplines of logic, mathematics, and of parts of physics. In these disciplines, logical empiricism showed how first principles can be justified as being linguistic conventions or synthetic statements a posteriori instead of resulting from dubious intuitions. This paper proposes an analogous shift for praxeology. If the fundamental axiom of praxeology is true by virtue of meaning, it is analytic. A hitherto unappreciated but crucial similarity between logic, mathematics, parts of physics, and praxeology is that mathematical terms do not refer to observable objects, and that praxeology on closer examination has no obvious empirical content either.
The fundamental axiom in effect only stipulates that certain theoretical entities exist, and certain others do not, but it does not exclude any potentially observable states of affairs. Man acts and inanimate objects merely behave. However, there is no obvious observable difference between acting and behaving—rather the social scientist has to start with a methodological decision , which kind of explanations she regards satisfactory. In order to motivate the shift toward an analytic fundamental axiom further, note that we are acquainted with theoretical entities like goals, means, and preferences from our everyday lifeworld.
Nearly all laymen use a language containing such theoretical, i. Mises , pp. How analyticity can be extended from the fundamental axiom to praxeological theorems is illustrated by Klein : Using concepts different from neoclassical economics, the praxeological law of demand holds without any exceptions such as Giffen goods.
It is notorious that this is suspiciously close to being a tautology. Nelson , p. Once the fundamental axiom is analytic, its conventional character—i. If the linguistic rules governing the analytic concepts do not serve their pragmatic purpose expediently, new conventions are to be set up. The proposal in this paper is conventionalist in an even twofold way. Firstly, the fundamental axiom decides the question which objects act by convention. Furthermore, some fine tuning is required too, such as the determination of the difficult cases of animals and children.
Secondly, once it is established which objects act and which do not, many details of the concept of action allow for more than one explication. In this section we contended that the content of Misesean praxeology is ideally suited for a conventionalist justification—which neither Mises nor his successors consistently provided.
The proposed conventionalist justification evades charges of extreme apriorism as we will show in Sect. At this point, we deem it proper to mention that some authors have questioned before whether praxeology is necessarily linked to extreme apriorism. Rizzo elaborates the first explicitly Lakatosian reconstruction of Austrian economics. He concisely reviews the idea of a Lakatosian research program 43 with its hard core, protective belt, and positive heuristics in order to apply it to Austrian economics.
For our present interests, the hard core is most relevant. It contains those sentences of Austrian theory which are reconstructed as a priori. However, when Rizzo examines a more detailed picture of the hard core, he enumerates several corollaries allegedly derivable from his single axiom. For some of these corollaries, implicit auxiliary assumptions seem to be necessary. Anyhow, Rizzo took an auspicious first step towards Lakatosian reconstructions of Austrian economics and enables revealing comparisons between different research programs.
At least one systematic and one more sociological factor could have contributed to the limited success of Lakatosian reconstructions of Austrian economics. We will address these two obstructive factors in turn. Systematically speaking, previous Lakatosian reconstructions of praxeology have failed to address the conventionalist character which Lakatosian hard cores have by definition.
The previous failure to adequately address this crucial question justifies Scheall a , p. Even Lakatos himself , p. This, however, does not preclude the possibility of dispensing with extremely aprioristic justification s of praxeology in favour of conventionalism, while leaving the content of praxeology untouched.
The possibility of fulfilling the requirements I , II , and III invalidates accusations of necessarily extreme apriorism which praxeology has often faced. Given this rebuttal of systematic objections to a conventionalist justification of praxeology, the content of praxeology as outlined in Sect. On a more sociological note, Zanotti and Cachanosky ascribe the limited dissemination of Lakatosian versions of praxeology to the strong Rothbardian influence on the praxeological branch of Austrian economics. They grant their respective personal intuition the role of a truth-criterion.
Therefore, his justification of praxeology is not compatible with the conventionalism proposed in this paper. From a Rothbardian stance, this seems to pose a problem for the acceptability of a conventionalist praxeological research program. Linsbichler , p. Numerous scholars have identified extreme apriorism as a problem of justifications of praxeology. Undisputedly, the standard reading of Mises as an extreme synthetic apriorist does have textual support. Instead, we want to accentuate several hitherto underappreciated remarks and arguments, in which Mises nolens volens approaches a conventionalist defence of an analytic fundamental axiom of praxeology.
core1.lga02.nsone.net/educar-a-la-ciudadana-un-proyecto.php Firstly, while Mises uses Kantian terminology and believes in the existence of synthetic judgements a priori Mises , p. Secondly, Mises accepts the existence of alternative, prima facie tenable research programs. Linsbichler , pp. He admits that two types of alternatives to praxeology are consistent and cannot be dismissed a priori. While the fundamental axiom states that human individuals act and only human individuals act, prima facie consistent behaviourism denies this by claiming that no objects at all act. Mises as a methodological dualist 50 argues in a non-metaphysical, but pragmatic way against behaviourism.
Mises not only admitted the existence of consistent alternatives to the fundamental axiom. Moreover, his remarks on the history of non-Euclidean geometry , p. Admittedly, Mises believed that he ultimately overcame that problem in the case of praxeology and successfully avoided conventionalism. Thirdly, Mises ponders that neurophysiologically there might be a continuum between action and non-action. Obviously, the decision, where to draw the clear-cut border involves at least some leeway.
This brings Mises closer to a conventionalist position regarding explications of praxeological concepts. It is obvious that it is also impossible to demonstrate satisfactorily by ratiocination that the alter ego is a being that aims purposively at ends. It works not only in the search for knowledge and theories but no less in daily practice.
Fifthly, in some instances, Mises is highly critical of intuition as a source of knowledge. Particularly, Mises rejects the claims of certainty and universality attributed to statements arrived at by intuition. Furthermore, Mises raises the problem of intersubjectivity, which he considers an important property of scientific knowledge. Conversely, the remarks above are by no means sufficient to portray Mises as a full-fledged, self-aware conventionalist. But we do not ask how Mises actually justified praxeology.
The more future-oriented focus of this paper is to show that the content of praxeology can in principle be justified without extreme apriorism. Concluding Sect. After having discussed these objections in turn, we will address a potential ontological worry in Sect. However, just as logic and mathematics, a system of praxeological definitions, deductions, and theorems is potentially highly untrivial and extremely useful for explaining and predicting phenomena in the external world.
Analyticity by no means implies triviality. Conventionalism is sometimes associated with arbitrariness. While in principle linguistic conventions can indeed be constructed at will, the theoretical and practical expediency of linguistic frameworks as a whole and of specific elaborations of definitions within these frameworks has to be tested, critically discussed, and evaluated. Without pragmatically suitable logic, mathematics, and praxeology, it would indeed be much harder or even impossible to build skyscrapers or understand market phenomena. The choice of conventions may and should be guided by experience and interests, but there is no intuitive, observational, or theoretical basis for a straightforward decision between different conventions.
Praxeology is designed with a specific purpose, namely epistemological interest in social phenomena. It may be presumed that the Middle Ages would have understood no more of the modern theory of price formation than of Newtonian mechanics or of the modern notions of the functions of the heart. Nevertheless, rain drops fell no differently in the Middle Ages than they do today, and hearts did not beat otherwise than they do now.
Though the men of the Middle Ages would not have understood the law of marginal utility, they nevertheless did not and could not act otherwise than as the law of marginal utility describes. Scientific realism and anti-instrumentalism are sometimes considered indispensable tenets of the the Austrian School.
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At first, note that in our context the debate between realism and ant-realism is not concerned with the existence or non-existence of observable objects, such as desks, swans, and humans. The question is rather, what the theoretical terms in our theories refer to and whether they refer to anything at all.
A typical anti-realist denies that theoretical terms refer to anything; consequently, sentences containing theoretical terms have no literal meaning and hence no truth-values. Therefore, anti-realism is committed to an instrumentalist view regarding theoretical terms. For an instrumentalist, the sentences of her favourite theory could very well have literal meaning and truth-values. However, she possibly upholds a theory without caring that it is known to be false. We are not emphatically interested in establishing that praxeological theory could be interpreted in an anti-realist or instrumentalist way.
Our goal in this section is rather to assure those scholars who deem realism and anti-instrumentalism generic and indispensable tenets of the Austrian School that these positions are compatible with conventionalism as characterized in Sects. When a law has received a sufficient confirmation from experiment, we may adopt two attitudes: Either we may leave this law in the fray; it will then remain subject to incessant revision […].
Or else we may elevate it into a principle by adopting conventions. We affirm simply that there are synthetic intrinsically plausible true propositions, and that science strives to accumulate ever more of these; we do not however affirm that we know or much less that we have certain knowledge about which of the available candidates for such propositions are true among those which at any given time play a role in the really existing sciences.
The given intelligible structural traits of reality can be overlooked or misinterpreted. The recognition that there are a priori structural traits in the world yields, to repeat, no easy sort of indubitable evidence in relation to the corresponding propositions. Smith , p. Among praxeologists there is a fair amount of consensus as to the content of the fundamental axiom and the implementation of praxeological methodology as introduced by Mises and portrayed in Sect. In contrast, seemingly irreconcilable disagreements separate various different justifications of praxeology.
For instance, Rothbard , Hoppe , , Long , and others provide their own justifications of the fundamental axiom. The philosophical backgrounds and arguments of these authors sometimes considerably deviate from the standard reading of Mises. Over and above the discordance within the Austrian School, all the prominent justifications of praxeology are almost unanimously considered epitomes of extreme apriorism.
Withal, the content and implementation of praxeology remains untouched by these epistemological considerations. Logical deductions of new praxeological theorems can be attempted just like before and explanations and predictions of social phenomena can be provided just like before, i. In comparison to the extremely aprioristic justifications of praxeology hitherto dominant, our conventionalist alternative is even less aprioristic with respect to the content dimension i. An already very narrow scope of the fundamental axiom is further reduced to vacuity.
More importantly, the kind of justification ii is not extremely aprioristic anymore. Neither Hutchison nor Scheall a classify truth by convention as extremely aprioristic. Indeed, one of the main achievements of philosophy of science of the last century was the elimination of intuition and synthetic a priori judgements as a necessary basis for the justification of logic, mathematics, and empirical sciences.
With some delay, a similar possibility has now been made explicit for praxeology. Finally, the certainty iii of analytic praxeological theorems is of course higher than the certainty of almost all empirical hypotheses in the natural sciences. However, the adequate comparison is rather between praxeology and definitional and mathematical auxiliary constructions in other disciplines. In that case, the respective certainties exculpate praxeology of extreme apriorism regarding iii.
From the perspective of mainstream philosophy of science and mainstream economics, we expect the moderation in apriorism to increases the acceptability of praxeology immensely. We hope our conventionalist proposal contributes to an encouragement of more constructive discussions within the Austrian School as well as between the Austrian School and other research programs.
A closely related benefit of the conventionalist version of praxeology is a raised compatibility with the use of formal methods. Congruously with his rudiments of conventionalism, Mises only rejects certain inadmissible applications of mathematical methods, whereas Rothbard, who has no conventionalist leanings whatsoever but champions an essentialist theory of meaning, wholeheartedly rejects the use of formal methods in economics.
Furthermore, several authors have conjectured that the adoptions of epistemological or methodological positions and of political worldviews are not independent of each other see e. Boettke ; Popper , ; Talmon a , b. Keeping that in mind, a justification of praxeology should ideally be in line with the political liberalism defended by many Austrian economists.
Since praxeological methodology rules out observation as a critical standard anyhow, this paper proposes to adopt a form of conventionalism as an auspicious strategy to avoid dogmatic tendencies. The epistemological openness and modesty of conventionalism ideally match the plea for political openness and modesty dear to many Austrian scholars.
Praxeology, the methodology of the Misesean branch of the Austrian School, is considered a particularly extreme example of apriorism in economics. In this paper, we argued that this assessment only applies to the justifications of praxeology hitherto prevalent. In comparison, a possible and plausible conventionalist justification takes the fundamental axiom of praxeology to be analytic instead of synthetic, thereby yielding a moderately aprioristic version of Austrian economics. Given a conventionalist justification of praxeology, the economic thought of the Austrian School cannot be straightforwardly rejected on epistemological grounds anymore.
Austrian positions in the calculation debates, regarding entrepreneurial discovery and thoroughgoing subjectivism, or in capital theory and by implication in explanations of the business cycle could gain respectability. Non-Austrian economists would perhaps continue enhancing their attention to the role of information, prizes, institutions, and time in the market process. The flipside of this point is, however, that in turn Austrian economists are called upon to extend the humbleness they display when it comes to quantitative predictability and arbitrary tractability of social phenomena.
Instead of invoking pure intuition as an allegedly infallible truth-criterion to declare all other research programs fallacious, the relative scientific expediency of slight variations of praxeology and of praxeology against entirely different approaches should then be critically discussed and fastidiously evaluated. Even more generally speaking, we believe increased explicitness about the methodological status and about the exact content of antithetical first principles can contribute to turning a partisan stalemate into a more nuanced, fruitful discussion.
In science and beyond. Orthodox models using unrealistic assumptions may of course self-consciously serve other purposes than providing realistic descriptions. As for the latter, he knows that praxeology is subject to error just like any human endeavour Mises , p. As a special case of experience, Boianovsky accurately portrays Mises as attributing little to no value to travelling, theorywise. They refer to the deductive inferences from the a priori true starting point only. Social scientific knowledge in a broader sense can of course be improved by travelling and other empirical research, even according to Mises.
The explication of the fundamental axiom is, however, an ongoing task. Analogous to axiomatizations in other disciplines, we would expect progress from the utilization of modern formal logic. Hence, the identification of action with conscious behaviour may have some heuristic value but is subject to severe restrictions. Suffice to say that Quine did not mark the end of conventionalism or of the distinction between analytic and synthetic. Creath , , Alspector-Kelly , Russell , Psillos , Friedman , and many others substantiate that the debate is still unresolved.
Only Sidelle provides a post-Quinean defence of necessary truths by convention. Among the distinguishing marks of extreme apriorism are claims that observation of the external world outer experience plays little or no role in the justification of scientific knowledge. Instead, inner experience intuition or introspection or pure reason are granted a privileged role. See Hutchison for a history of ultra-deductivism. His major point of criticism against apriorist positions is their use of unrealistic claims about the knowledge of the acting individuals and the ensuing problems to discuss disequilibria.
But the fundamental axiom states neither perfect information nor rational expectations. On the contrary, the central role of imperfect and dispersed information in the approach of the Austrian School has been manifest ever since Hayek at the latest, but probably even earlier, as Kirzner , pp. For the auxiliary axioms see Rothbard , pp. Strictly speaking, sentences the deduction of which requires not only the fundamental axiom but also at least one auxiliary axiom, can be called praxeological theorems and a priori using a trick.
See Linsbichler , p. The narrowness of the aprioristic fundamental axiom has indeed raised criticism.
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