Austrian Economics Is Empirically Verified

[Jon_Irenicus]

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This article is a response to Joe D’s recent article “Why We Can’t Associate Too Closely with the Austrians.” Contrary to his article, I claim that Austrian economics is in fact an empirically verified science. But unlike most sciences where observation is used to support or refute the predictions of axioms, the Austrian method directly verifies the axioms, the consequences of which must be true.
Axioms, like the subjectivity and ordinality of value, and the nature of action, are directly observable in a way that the motions of particles or the interactions of forces are not. As a result of this, we are able to construct a science that — unlike mathematics — says things about the real world, while having none of the uncertainty of the other observed sciences.
For instance, let’s say you go to the store for some spaghetti. While at the store you get really thirsty. You now have the choice of getting the spaghetti as originally planned, or you can get a drink at the deli, but you cannot have both. You choose to forego the spaghetti and get the drink. Relatively simple right? Let’s ask a few questions.
Would you say that the nature of action in this case was one where you could choose between an infinite number of alternatives with no consequences, or was it instead a choice to abandon one possibility in favor of another? Based on this answer, you can begin to support or refute propositions about the sacrificial nature of action.
Did you value the spaghetti the same after you entered into the store, or did your values change? The answer to this is not philosophical. You are observing the qualities and nature of value. Remember also that you were prepared to forego the other things you anticipated being able to buy with your money in order to get the spaghetti. Based on the answer to this question, you will have support for either a cardinal or ordinal theory of value. If value is cardinal in nature, then either the drink alone will have a higher cardinal value than the spaghetti, or the drink in combination with other items will, when their cardinal values are added, have a higher value than the spaghetti. As a consequence, you would be willing to pay more for the drink, either alone or in combination with other items. In an ordinal system, this is not necessarily the case. Since only order is attributed to the items, there is no need to add values. Based on your wants, the order of these priorities can be shuffled, resulting in a combination of goods for which you would not be willing to pay a higher price, even though you preferred them to the spaghetti in this instance.
Could the choice have just as easily gone the other way? Depending on your answer, support for an objective or a subjective theory of value exists.
Now, spend a day observing similar exchanges in yourself and in others. Ask similar questions. The answers to these questions and those you will ask will lead you to the same conclusions that Austrian economics uses as its axioms.
Furthermore, because we are not talking about something outside ourselves or remote from our nature, we can know the answers to these questions with certainty. That means that any system that uses these conclusions (as well as others) as axioms must derive theorems that are certain, in addition to deriving theorems that are more than mathematical tautology. Hence, we can know about the economics of the world with certainty by using a system constructed both of derivation and observation.
This certainty yields a system of thought that can, at times, resemble rationalization. For instance, suppose the government inflates the currency. Upon observation, it is found that prices did not change. Were economics like physics, the fact that prices did not change would refute the theory. However, since we already know with certainty the effects of inflation, we can say that without inflation, prices would have fallen.
Thus, while it true that Austrian economics is empirically verified, as explained earlier, it cannot be empirically verified in the same manner as the physical sciences.

Source.



Nothing new here, but it should help clear up some confusion for those not versed in methodological matters.



-Jon

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[Morty]

Joe D is a physics student

Joe has physics envy.