Austrian Economics and Epistemology
Some people criticize philosophy as having no real world application but one idea I spend the significant time in real life discussions arguing against is, I think, a classic example of an idea which fails a basic test of epistemology. This idea is the Austrian school of economics which, if you don’t know, attempts to form economic theory, at least primarily, from the basis of a priori truths about human action.* Austrians do this through logical deduction beginning with the fact that humans act for reasons, a process known as praxeology. According to the founder of this school, Ludwig von Mises:
[Praxeology] aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts. Human Action pg. 32 (69)
Now what’s wrong with this? Well every Bayesian should know there’s no such thing as a priori truth. Case closed. When analyzing any deductive argument there are two ways it can shown to be false, there can be a flaw in the reasoning process or the reasoning could be valid but not match observed reality. In the latter case you may not be able to identify where the argument is wrong but still know it must be wrong because it doesn’t fit observed reality. Austrians want to deny this second possibility yet still claim that their theories have something to say about reality. In other words, they are claiming their theories make no predictions, so can’t be refuted, but they still make claims which have predictions about reality, which, like any meaningful predictions, can be tested in the real world.
This is, if you can’t tell, decisively self-contradictory. There are no theories about reality which can’t be refuted by empirical review. If you think you have one it’s because your theory makes no predictions and hence isn’t really a theory at all. As possibly my favorite quote, courtesy of Eliezer Yudkowsky, reminds us “If you don’t notice when your model makes the evidence unlikely, you might as well have no model, and also you might as well have no evidence; no brain and no eyes.” In the case of Austrian economists I’m tempted to say it’s because they’ve have had their eyes figuratively destroyed through an intensely inward focus. They don’t notice that their model can be proven wrong because they declare by fiat it’s impossible because their conclusions have been logically deduced from ‘undeniable truths’ about human actions. Even if their arguments were logically valid, the only way we can know if they are sound is if their premises are true. But the only way to know if the premisses of an argument are true is through inductive reasoning, or, in other words, through empirical observation. However if they accept it’s okay to check the premises of an argument empirically, it would require some intense mental parkour to conclusions are immune from such empirical analysis.
So Austrian economics isn’t just, as a friend likes to say, “economics without math” it’s economics with a circular and self-contradictory epistemology. This doesn’t of course mean every conclusion its followers have reached is wrong, Austrians were at the forefront of economics in the 1920s with good reason, but it does mean Austrian economics doesn’t, and can’t, provide a sound method for reaching conclusions about reality.
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*For those already itching for a no-true Austrian critique I’m aware not all Austrians embrace this but this surely is the brunt of idea of Mises, the founder, Rothbard, it’s major champion for much of the later part of the 20th century and of the Mises Institute which really is the hub of Austrian thought in the world today. Yes, this doesn’t really include Hayek but my point isn’t an analysis of all Austrian thought but rather a look at particular epistemological flaws in main theories of the school.
