Quoting Frank Mastrianna (from his textbook on economics), “The study of any subject must follow the rules of logic, whether reasoning from a particular instance to a general principle or from a general principle to a particular application.”
You don’t have the convince me that ‘the mainstream’ pays lip service to correct methodology, nor do you have to proof that ‘the mainstream’ is completely oblivious about (correct) methodology. Luckily; we aren’t 1953 anymore.
I’m not arguing ‘the mainstream’ versus ‘the austrian’ way here - even though I sometimes refer to that language. I’m describing correct methodology here. In so far you can point at examples that respect the epistemological and methodological points I make, I’m happy for them!
Regarding the a priori character of causality…
Unseen picture.
And the Mastrianna quite does not mean what you think it does.
That might be true; but purely based on the quote it could come directly from The Ultimate Foundation of Economic Science. It is however hard to know what it ‘means’ given the fact that the context isn’t given. Feel free to elucidate.
Then please enlighten me.
And, also please teach me the psychic tricks you used to know what I think.
AdrianHealey, my point was simply that any respectable theory always uses deductive logic; long before Mises was around, that was standard practice. The hostile anti-empiricism of Austrianism is what is suspect; to praise rationalism detached from data seems like a terrible regression to 17th-century Continental philosophy.
Well; I’m perfectly in agreement with the statement that any respectable theory should use deductive logic; but this is not a sufficient condition to be applicable to the real world. The assumptions where we deduce from have to be relevant too. Again; the perfect competition model is logically sound, but it makes no sense in the real world because the assumptions are irrelevant int he real world.
Well; Mises always explained that he didn’t consider himself to be any different from the mainstream. There is this quote saying that basically Austrian economics is dead: all the relevant statements have been incorporated into the mainstream. (I don’t know the date of this quote, though.) People like Cairness and Nassau Senior did praxeology before Mises was around - without using the term, of course.
I’ve gone through great lengths explaining that Austrian economics - in the sense that Mises and Rothbard explained - it is not anti-empiricism. Again; this is a mistake. It’s the other way around: Mises went through great lengths explaining the limits and uses of theory and empirical observation and the relation between the two in order to work in a epistemological sound way with data. There is no ‘anti-empiricism’ in Austrian economics; there is only opposition to a wrong way of using data. That is all. So nobody is ‘praising rationalism detached from data’. We are denouncing the idea that we can deduce causal mechanisms based on data alone - ‘sun rises cause alarm clocks to go of’-kind of thinking. You need a theory that makes sense; based upon postulates that are relevant in the real world.
Now I’m sight-tracking from Mises his epistemological theory a bit; but what my take is on Mises - as a philosophy graduate - is that he was doing the same thing Kant did. Kant solved the problem of the ‘empirical’ versus ‘rationalist’ discussion (locke versus Descartes and all) by giving both reason and empirical observation their right place in the acquisition of knowledge. Mises did the same thing in economics. There is no denouncement of empirical observation in favour of theory, nor is theory a glorification of theory over empirical observation; it is giving both their right place in building knowledge. That’s why he spend so much time defending his theory - first 100 pages of HA, Epistemological problems of economics, theory and history, the ultimate foundation of economic science. He has created a solid unified theory concerning the use of postulates, empirical data, theory regarding economic theory (the laws of action) and history (the interpretation of actions and consequences in the past).
Not irrelevant, only approximate.
So what does this mean? Austrian economics also makes use of approximate assumptions, e.g. the preference for monetary profit. This is an approximate assumption; because ‘actually’ people prefer psychic revenue. It is, however, a broad empirical generalization that people prefer monetary profit. This approximate assumption is however mainly for heuristic purposes; you could explain it all in psychic revenue terms, but that’s a bit more difficult, because you have to mention the qualifier all the time. It’s just easy to make the approximate assumption, whilst explaining that all the qualifiers that go with it, still hold. E.g. it’s not a refutation of economic theory when someone doesn’t maximize his monetary profits in a case where he gives his brother in law a job, even though other candidates might be a bit better. This doesn’t ‘disproof’ the assumption; but it shows the limits of it.
On the other hand; you have however ‘approximate assumptions’ who are completely bogus, e.g. ‘perfect information’ or ‘bounded rationality’ assumption. Obviously; we can construct a theory that is consistent with the ‘perfect information’ or ‘bounded rationality’ assumption and this one will hold for beings that have this kind of knowledge. This is, however, irrelevant for human beings.
So no; the ‘perfect competition’ model isn’t ‘approximate’; it is irrelevant. Perfect knowledge isn’t part of the world we as humans live in. And it doesn’t help for heuristic means either, because one of the things that economic competition tries to solve is the ‘knowledge’ problem - broadly conceived. That’s the point Roderik Long makes in his paper ‘Realism and Abstraction in Economics’. There is no problem with abstracting certain things away; it is however a problem when you abstract away the thing that needs to be explained/the thing that is relevant for the investigation as such. You can abstract away from certain kinds of knowledge; but when you specify that people have all the knowledge, you are being absurd.
The abstraction Austrians do when they talk about the ‘monetary profit’ (in stead of psychic revenue) assumption abstracts away certain ends - but we aren’t explaining the ends as such, so there is no real problem there. We are explaining the process that helps to achieve ends; so it doesn’t matter what the ends are, so we can abstract it away for heuristic purposes.
This is, however, not the case when we talk about ‘perfect competition’. So no; these aren’t approximate assumptions, but irrelevant assumptions.
Maybe I’ll try and write a Mises Daily Article based on this. That might work.
So you don’t agree with the following:
" …Economics, in fact, “assumes” nothing. The whole discussion of alleged “assumptions” reflects the bias of the epistemology of physics, where “assumptions” are made without originally knowing their validity and are eventually tested to see whether or not their consequents are correct. The economist does not “assume”; he knows. He concludes on the basis of logical deduction from self-evident axioms, i.e., axioms that are either logically or empirically incontrovertible."
–Rothbard
http://mises.org/rothbard/mes/chap9b.asp#2G._Problem_of_Unemployment
“Maybe I’ll try and write a Mises Daily Article based on this. That might work.”
Yea, you might want to. These distinctions you make of the are quite illuminating. Thanks for sharing.
Just an observer but I have to say this is really good stuff. 
Like I’ve stated elsewhere, I actually have no oppositional stance to praxeology; I simply want its practitioners to realize that praxeology (as most clearly revealed by Rothbard) has an empiricist foundation and is revisable (hence there is no guarantee of immutable truths or certainty).
Yes, thanks for this insight that Mises acknowledged… (though the “no guarantee of immutable truths…” thing is rubbish, not even an empiricist like Rothbard would accept it - only a positivist/epistemological nihilist would and in the former’s case utterly incoherently.)
I’m pretty sure me and Rothbard are talking about two different things here. The approximate assumption for the search of monetary benefits is mentioned explicitly - at least ‘somewhere’; I’m trying to find where - whilst, obviously, explaining that this assumption is in real life false. People strive for psychic revenue, so someone who induces a lower monetary return for some other benefit (e.g. giving a family member a job, even if that causes a little bit less money) doesn’t disprove this theory. It’s pure for heuristic purposes. Imagine reading through MES and you have to read every single time when talking about profit and all that it’s not ‘monetary profit, but psychic revenue’… It’s just a short cut to explain the idea, nothing more, nothing less.
We know for certain that people strive for psychic revenue; so we don’t need to test that. But we can use, for heuristic purposes, break down the various ends people have to one single concept - the monetary assumption - because this helps us to explain the concept.
Rothbard also discusses other auxiliary assumptions like the disutility of labor. (Which isn’t the same as proximate assumptions.) The difference being that a auxiliary assumption could empirically be different; we just happen to live in a world where it isn’t. A proximate assumption is an assumption that is obviously false, but that is close to reality enough to be used for certain (in this case: heuristic) purposes, which is clearly explained. The use of heuristic assumptions isn’t that controversial either; the whole chapter on production makes use of simplified production processes, to clarify certain concepts and mechanisms.
And, finally, there is a third limitation on the supply of labor: whether or not the work is directly satisfying in itself, labor always involves the forgoing of leisure, a desirable good.27 (pg 43)
and in the footnote he writes:
This is the first proposition in this chapter that has not been deduced from the axiom of action. It is a subsidiary assumption, based on empirical observation of actual human behavior. It is not deducible from human action because its contrary is conceivable, although not generally existing. On the other hand, the assumptions above of quantitative relations of cause and effect were logically implicit in the action axiom, since knowledge of definite cause-and-effect relations is necessary to any decision to act.
so there is a slight inconsistency in terminology when he writes (as quoted in the introduction)
First, the few, immediate implications can be deduced from the existence of human beings and their action; then, further implica- tions can be deduced from the first ones, etc. Actu- ally, this is the only assumption necessary; the only further premises are introduced in order to limit the deductions to realistic situations, and can be empiri- cally demonstrated as true. (pg xxxiv)
Here he calls it a ‘premise’ and not an assumption. Whatever he might call it; the point is clear: the body of economics as written down by Mises and Rothbard is explicitly made relevant for the real world. The action axiom is real and the auxiliary assumptions they make pertaining how the world works are based on broad empirical generalizations. E.g. there is (apparently; I’ve never looked into it) a theoretical possibility that in a world where labor is a monopsony, that the minimum wage actually increases employment. And we could probably make an a priori theory based on that; but this would be completely irrelevant, because we don’t live in that world where labor is a monopsony. Also we could make a theory based on the relative scarcity of land over labor; an auxiliary (empirical) assumption made in chapter 5 in MES. Rothbard even discusses the consequences that this would have - hint: it doesn’t look to pretty, because this means there would be sub marginal workers, who can’t make a wage high enough to keep themselves a life and would by logical necessity be dependent on charity - but this theory isn’t relevant in the world we live in, based on empirical knowledge. This, again, proves that the body of Austrian economics isn’t ‘just’ a priori; it’s a priori combined with empirical knowledge we have but most definitely distinct from the normal ‘mainstream’ positivist way.
So I don’t think Rothbard is necessarily wrong in that quote. If you look at the context, he’s talking about the idiotic straw man that economics assumes full employment - which is relatively clear (imo) a sneer towards good ol’ Maynard. Those kind of assumptions are, indeed, absent in Austrian economics. What Rothbard writes on ‘logically or empirically incontrovertible’ is, I believe, what I just explained on auxiliary assumptions and the action axiom. Maybe Rothbard wouldn’t agree with me calling the ‘monetary return’ thingy an ‘assumption’, but I think the term ‘approximate assumption’ seems to do the trick imo. Whatever you might call it; it’s clear that this is used in economics, but that this is assumption is, strictly speaking, wrong. But it does help clarify certain ideas. (Just as certain production structures in the chapter on production are used to clarify certain ideas.)
Edit: this quote from page 75 is quite illuminating:
Praxeology asserts the action axiom as true, and from this (together with a few empirical axioms—such as the existence of a variety of resources and individuals) are deduced, by the rules of logical inference, all the propositions of economics, each one of which is verbal and meaningful.
so Rothbard conceives the nature of ‘variety of resources’ to be an ‘empirical axiom’. Interesting; I’ve looked over this subtle point before. I wouldn’t, however call it an ‘axiom’ but, as I did before, an auxiliary assumption. But however you call it; we mean the same thing.
On the monetary profit assumption: (starting pg. 213)
It is clear that the more money income a man receives dur- ing any period, the more money he will be able to spend on desired goods. Other things being equal (an important qualifica- tion that will be examined in later sections), he will strive to earn as much money income in any prospective period as he can. (pg. 199)
and than he explains this qualifier in part 7 of chapter 3.
It’s all in Mises/Rothbard, really. I hope it helps, but you really have to give Mises all the credit.
The basis for studying money prices has nothing to do with assumptions.
This is why Mises refers to it as a study of Catallactics. He makes no assumptions about approximations for anything.
The science of catallactics is completely independent of how much monetary profit comprises out of the total profit (pure psychic + monetary) or how much it approximates it. If you can or what you can empirically observe regarding this issue is something that is outside the realm of Austrian economics. Austrian economics doesn’t assume anything.
The joke about the economist stranded on the island and assumes a can opener does not apply to Misesian economics.
And I don’t think the joke is applicable to Misesian economics. Again; read through what I said: the monetary profit assumption is a heuristic means, that is not relevant in the real world, but is an aid - so you don’t always have to aid the qualifier: ‘obviously; psychic revenue (not profit) is aimed for, but for the sake of the argument, we just assume here that the person aims for purely monetary revenue.’ That’s all there is to it. Nothing more, nothing less. It doesn’t invalidate anything, nor is it ‘wrong’. It’s just an aid in explaining certain things.
So I completely agree that the science of catellactics is completely independent of how much monetary profit comprises out of the total profit. I’m just stating that often, for heuristic purposes, we just use a short cut. Nothing more, nothing less.
By the way; I would call (1) the relative scarcity from labor over land, (2) the inequality of abilities and geographical locations and so on empirical assumptions, that are contingent in the world we live in. (It could logically be different.) How would you call them? Rothbard calls them empirical axioms, which is fine too, but I think ‘empirical assumptions’ works slightly better.
I wonder why you are so stringent on this point?
And again; I know what you’re saying and you are still wrong. There are no assumptions being made here.
The assumptions as an heuristic means are applicable to the natural sciences but not for economics, particularly Austrian economics.
For example:
Assume zero friction in physics problems and calculate the distance of X travels at initial acceleration of … (maybe useful approximation in mediums of low friction)
Assume relativity effects away and solve projectile problems based on Newtonian mechanics … (useful for most realized applications in the real world and breaks down for high velocity and high altitude projectiles)
There are no such assumptions in praxeology. The ERE is not an assumption. It is a mental tool. A tool is not an assumption.
I’m not sure you understand the nature and basis for assumption in scientific problem solving.
And Austrian economics relies on no such assumptions. It applies for when (1) and (2) are not as you have made them to be. (1) and (2) are nothing but given inputs to a problem. They can be as you describe them or they cannot. Economics is indifferent to how you define the given conditions.