The Austrian school of economics is very popular in libertarian and
anarchist circles today. Part of that school is its methodology which
favors building up theories based on axioms of human action. The Austrian
school says that these axioms need no empirical verification. I believe any
methodology that rejects empirical testing of theories is flawed. Once the
scientific revolution reaches the social sciences, any school of thought
that denies the empirical method will have to be abandoned just as happened
in the physical and biological sciences. If libertarianism and anarchism
are bundled together with Austrian economics, our politics will be
disgraced along with Austrian economics and we'll receive the same respect
as creationism or flat earth geography. Apparently there are economists who
call themselves Austrians but are not orthodox in that they accept some
empirical testing of their theories. I believe any economic theory must be
tested however, not just some peripheral theories, and I will argue for
this general rule.
When we study economics, we are dealing with observables. The prices of
products, exchange rates of different national currencies, and the
employment rate are all things we can observe. If we have a theory about
how such things work, we can test that theory's predictions with what we
observe and tell how good the theory is based on how close our predictions
came to reality. A theory about economics will either make predictions
about reality that can be observed or it will not. If it does not make any
predictions that we can check, it is a useless theory and cannot tell us
anything about our world. If this theory does make predictions, it is
meaningful because its claims about the world can be found to be true or
false. If this theory continuously succeeds at making correct predictions,
we say this is a good theory, at least in the situations that we've tested
it in. If there are parts of our theory that can be discarded while still
retaining all of our theory's predictive power, those parts should be
discarded.
Of course advocates of the Austrian school have objections to these
arguments and insist that the empirical method is not a good one for
economics. I emailed one of them following an article of his I saw at
mises.org which rejected the empirical method. He replied to what I wrote
with these things, which are pretty standard arguments from the Austrians.
He started by saying that some things, like the law of demand, are set in
stone and that if it wasn't true, then we'd have to throw out all our
textbooks because we wouldn't know if the law of demand would be true the
next day. But this is bad reasoning because if all our textbooks are wrong,
we are best off admitting it frankly and starting anew instead of lying to
ourselves to make things easier. Also, if an economic law has passed
numerous tests and made many true predictions it is very reasonable to
believe it will continue to do so, the very reason we empirically test a
theory is to find out how reliable it is.
He stated that one of the central tenets of Austrian economics is that the
laws of human action are not falsifiable. But falsifiability is an absolute
requirement of a scientific theory. If a theory makes predictions about
reality, it can be falsified. All we'd have to do is find what predictions
it makes, then test if those predictions are true. If a theory makes
predictions that turn out to be false, we know our theory is wrong. Our
Austrians seem to be saying that if we observe one thing and our theory
tells us something else, we should ignore what we just saw and continue
believing in our theory. Our theory won't be falsifiable only if it makes
no predictions, and if it makes no predictions, it's useless for anything.
He later said that the premises for human action come from the long-term
observations of human behavior and don't need to be continually tested to
see if they're true. So he's saying here that situations have been observed
where some law appears to hold, in fact numerous situations have backed up
the validity of the law. What's odd then is that he seems to be saying that
if some other situation comes up that contradicts this law, we should
ignore this because the law has held up in so many situations before this
happened. But of course this new situation isn't any less valid than any of
the others, it happened and if we're interested in the truth, we can't
ignore it. Part of scientific reasoning is that we try to prove our
theories wrong instead of right. We put them to all sorts of tests to see
if they always make correct predictions, and if they continuously pass our
tests, we call them good theories and depend on them, though of course
they're always up for more testing in other situations and to be tested
more accurately. If we have a theory that passes all of our tests for a
long time, but then we find a new situation where the theory fails, we
don't throw out the theory altogether. Instead we say that the old theory
is valid under the circumstances where it was successfully tested before
and invalid under the new situations. We'd study these new situations and
come up with new theories that explained economic behavior there. Finally,
we would, if possible, find one theory that could give correct predictions
under the new and old situations without any artificial separation between
the two.
He also says that the laws of economics are true because of a certain
understanding of how human beings act. The problem with this is that the
theory that is built up is nothing more than an idealization of what human
beings are. It is how a certain person believes that human beings act, but
it's a fairly informal way of trying to figure things out and really isn't
something we can depend on. So once we have this economic system built up
from our understanding of how humans act, we have to scientifically test it
to find if it is true.
These arguments are typical of the Austrians. I hope I've convinced you of
how unreasonable they are and why any theory of economics must be
scientifically tested. For a long time, the social sciences acted like they
were immune from scientific testing. Fortunately the tide is turning as we
can see from the latest Nobel prize awards. In the future, hopefully every
theory will be empirically tested before being accepted as true. The
academic world is currently dominated by Marxism and other leftist
ideologies. If anti-statism is to capture the intellectual world (what many
believe to be requisite for a libertarian takeover in the political arena)
and libertarians and anarchists are perceived to be connected to Austrian
economics as it currently stands, this could make us guilty by association
and end any chances for our acceptance in the academic, and therefore the
political world.
http://www.anti-state.com/article.php?article_id=381
