I posted this:
Hi Jake,
thanks for engaging into the debate with the fundamentals of austrian economics. I’ll try to keep my comment as clear as possible. (I take it you are a friend of Zach?) I would also like to mention that I’m not native English, so my apologies if something is, because of the language barrier, unclear.
You start of by engaging 3 different propositions which you attribute to Austrian Economics proper. I would, however, note, that these aren’t good representations of – at least – the entire body of Austrian Economics. I will try and explain why.
First of all; Austrians don’t disregard the entire body of statistics and empirical evidence. What is true is that Austrians are very suspicious about the possibility of deducing (exact) economic laws from empirics – which isn’t the same. Austrian would generally note that data tells you something about a certain period, but we can’t deduce economic laws that help us predict the future in any quantitive way. You can use statistics and try to model human behavior; and even if there isn’t anything wrong with the math, there is something wrong with this method.
Secondly; the way that Austrians use data is to apply certain theories to it. (I’ll talk about the a priori and quantitative laws a bit further.) That way we can try to comprehend certain historical situations. Example; we can apply the ABCT to the Great Depression and see if it gives a plausible explanation. We can apply regime uncertainty and see if it fits. Etc. There is no denial of empirical data. There is, obviously, a place for data. Austrians, however, argue that one has to understand the data in the light of correct theory. Imagine we study the movement of people in a train station as if it were atoms, with a certain regularity. We notice that the movements correlate with a 5 day – 2 day period, which happens to be Saturday and Sunday. We then ‘predict’ that it’ll be like this next week. But that week it’s Christmas on wednesday, so almost no movement on wednesday! An Austrian would say; in order to use the data regarding the movement of people we have to understand the people and their actions as they themselves perceive it. We can’t abstract away from these interpretations in order to understand this. This doesn’t invalidate the data we have collected – like how many people there are etc. – but it does require comprehension of the reason why the data is as such. Another relevant point is, obviously, the problem with all induction: ‘sunrise causes a lot of alarmclocks to go of!’ is something one could argue for if we disregard the comprehension of human action. Theory cannot be deduced from empirical data; theory has to make sense. Some Austrians argue that economic theory can only be from strictly a priori deductions. (I’ll come back to that.) Some argue that we can broaden this towards empirical generalizations, as long as the theory ‘makes sense’. These are the most relevant point, I think, Austrians make regarding the use of empirical data. I would note that this point isn’t weird or anything; it’s generally acknowledged in the scientific world of the moral sciences. Austrians just stress it even more. The bottomline is that theories who don’t try to comprehend people as acting people in a uncertain world, are doomed to fail. That’s the basic point and the methodological points follow from this point.
(3) Regarding ‘a priori’; I would say that it isn’t ‘dead’ for thousands of years. The history of ‘a priori’ reasoning has a long history in philosophy – starting with Aristotle, passing through the middle ages by various writers such as Aguino and going on to Kant and others. I would also note that just because the words ‘a priori’ aren’t used, doesn’t follow that people aren’t thinking a priori. It is true that a priori doesn’t tell us anything that isn’t implied in the concept, but it doesn’t follow that it isn’t usefull. Pythagorem theorem is implied by the triangle it is in, but it doesn’t follow that the theorem is not useful. The usefulness of a priori theory is to comprehend certain behaviors. Especially in the more advanced deductions in Austrian economy, the theories deduced are useful in analyzing history. I would also note that there is some discussion (as far as I see) wether or not economic theory is limited too deductions from the action axiom, or wether we allow certain empirical things. I’m of the position that a priori deduction does provide us with good theory, but that there is nothing a priori (hehe) wrong with certain theoretical statements not necessarily deduced. I’m open to investigate each of those claims on their own merit.
(4) I would also note that the Austrian theory isn’t purely deductive. There are some auxiliary assumptions, based on generalized empirical notions. First of all: the relative scarcity of labor versus land. Secondly: the fact that there are geographical and biological differences between humans. These are auxiliary assumptions. Technically; you could conceive an Austrian theory based on the assumption of the relative scarcity of land versus labor (Rothbard discusses this in Man, Economy and State) or on the biological and geographical equalness in the world.
(5) No Austrian proper would say that you don’t need empirics to understand any phenomena in the real world. But it doesn’t follow that we can’t have theory at all. Just as we have math to apply in the real world, we have economics to apply and comprehend the real world. Also; it goes like this: ‘If and when we can talk about x, y and z, then it follows logically that we have a, b and c’. The question wether or not we can speak of x, y and z is an empirical one, which we have to investigate, obviously. Example: ‘the minimumwage will raise the amount of people who will be self-employed (or ‘unemployment’)’ is a theoretical deduction. But in order to apply this, we have to know wether or not a certain law is a minimumwage, wether peope perceive it as a minimumwage, etc. This requires empirical research.
(5) Uncertainty is an area that has been greatly examined by Austrians. I don’t think just saying ‘hey, we live in an uncertain world, therefore deduction is wrong’ is enough to argue against Austrians in general.
I thus have to conclude that based on these 4 sentences, I don’t think you have a good grasp of the whole more nuanced vision of the Austrians regarding methodology. I’m perfectly willing to admit that there are people who don’t fully grasp the nuanced position regarding methodology. I’m not quite sure wether I do. But I would say that it’s my believe that you don’t do justice to the position.
That’s the first issue.
The second issue is money and inflation. I also have some points regarding this issue.
(1) First: Let’s disregard the fact that ‘austrianism’ can’t make valuejudgements as such; but that this is more a point based upon Austrian theory to deduce certain normative conclusions.
(2) I would say that it’s not the Austrian position that inflation causes death and all destruction This would be based upon an empirical investigation – not on a priori reasoning. In the inflationrate was 0.0001%, obviously; the effects would be less damaging than if it were 100000%. What you note about ‘warefare, recessions and mass poverty’ is that we can analyze history in such a way that inflation is used to support war (as a hidden tax), causes recessions because of the ABCT and is also a possible cause of redistribution from the poor to the rich. All of these claims aren’t a priori; but are based upon historical research, using certain theories.
(3) Little sidenote: the ABCT is an a priori deduced theory, but the application to it in historical circumstances is not. We can only know wether or not a certain recession is caused by the ABCT if we look at the facts and interpret them.
(4) It is true that a ‘mild’ inflation of 2 a 3% won’t have the same distorting effects as, say, 100%. (Don’t forget, however; a 2% yearly inflation doubles the money supply in 37 years or so. I would say that’s still a lot.)
(5) The fact that the ‘empirical evidence is extremely weak’ and that ‘Different interest rates move in different directions in response to inflation which balances out most distortion it causes.’ are, just that, empirical questions. The least you could do is to provide empirical evidence for it. The thing I would like to note is that this is, indeed, an empirical discussion. It’s an empirical discussion wether or not certain theories – like the ABCT – are applicable to a certain period. This doesn’t, however, require the normal empirical method: ‘how low was the interestrate?’ but it would require counterfactual thinking. The abct is a theory that says ‘if the interestrate is lower then it would otherwise have been’… So we need to try to comprehend wether or not the interestrate was too low compared to what it otherwise would have been. This is an empirical matter, but with respect for the counterfactual. (Most, if not all, economic laws can be formulated in terms of counterfactuals; ‘if not x, then z’.)
(6) ‘Has proven the best method’ is also very peculiar. Again; this requires counterfactual thinking, which cannot be done by just ‘looking’ at the data, but comprehending the data in the light of certain theories. How do those theories come to be? Well; they need to make sense…
To sum up: wether or not the claims regarding history (of money and banking) make sense, requires historical investigation. This, however, cannot be done based by mere ‘looking’, but has to be done by ‘comprehending in light of theory’. So we need correct theory: how does correct theory come to be? Well: it has to make sense. How does it make sense? Well: by deducing it from things that make sense.
I hope, to the very least, I can convince you that the whole of Austrian methodology makes some sense?
The third issue isn’t really an ‘Austrian’ one, but more of a ‘Libertarian’ one, to be honest. But in any case; I hope you do realize that you are just begging the question? ‘there are very compelling arguments for…’ Oke; that is probably true – else nobody would believe that these things should be provided by the government. But it doesn’t follow that there couldn’t be very compelling arguments the other way around, now does it? I would say that from a theoretical and empirical point of view; most – if not all – things that government provide can (and have been) provided private. An economist can’t say wether or not this is a good thing, but as an economist, we should keep in mind that a whole lot of things have been provided privately. I would also say that empirically; the robustness of ‘markets’, i.e. entrepreneurial discovery of alternatives when the state is absent, is pretty amazing .Someone like Elionor Ostrom did some great work on that.
The last point is the moral one; which is, again, a libertarian one, not an (austrian) economics one. I would say that some economists – like Israël Kirzner and Mises (especially in his work Socialism) – has written on redistribution, without inserting value statements. Just saying ‘if x, then z’. So I would advise you those, if you want to discuss redistribution from a pure economic point of view.
I hope this is of value to you. Greetings!