The relevant point is that whereas most mainstream economists will readily admit their unrealistic assumptions and justfiy them on the grounds that “the economy actually works as if everybody were a perfectly rational and omniscient individual with knowledge of a reasonable high level of math”, (think of Friedman’s snooker analogy) Austrians would say that such an approach actually misses out the real workings on the economy. Whilst for most mainstream economists understand the economy means being able to make quantative predictions, Austrians would say that understanding the economy requires understanding how prices come to be formed in a world of radical uncertainty and incomplete knowledge, to use Kirzner’s and Hayek’s points, respectively. Hayek said that what the mainstream does is akin to reading a book, adding up the number of letters, analysing the average length of paragraphs, sentences etc. only to turn around and say that one “scientifically” understands the book.
This is what I gather. Most Macro seems useful only as a hindsight observation, and as in Hayek’s example above, even useless at times. It is definetely important to understand what happened in hindsight, but most of our economic theories are Ptolemaic in nature. The calculations and observations fit for awhile, but when the observations diverge from the calculations, we make up the economic equivalent of epicycles.
IMO Austrian economic theories are on the right path to merging observation with calculation. I would like to continue the discussion. Should it be another thread?
What Empiricism Can’t Tell Us, and Rationalism Can by Mark Crovelli
a short, but in-depth Mises Daily article on the subject
edit: short quote:
“The rationalist epistemology starts from the assumption that man can know at least some things about his world with absolute certainty, and without “testing” to see if they are true through experience. Some of this knowledge can be acquired through mere ratiocination alone (the analytic a priori), while other knowledge must be acquired with a certain admixture of experience (the synthetic a priori).”
Rationalist epistemology is what an empiricist does plus has the awareness that some knowledge is a priori. Empiricist, as the article explains, can’t avoid a priori knowledge, but doesn’t have the explanatory power to know this.
By using the theory to find empirical facts not in evidence/required by other theories and which show the cause of specific effects observed. Which I know a lot of people will disagree with, but the absolute limits of epistimology being granted as what they are, common sense and reality do still exist and you can’t sit in an ivory tower demanding your theories proceed from perfectly true premises so they must simply be true themselves. Just because you can’t use historical data to absolutely prove any one theory or another doesn’t mean you can’t make a relatively better case than others as a practical matter. Theory has to prove its merit in application or it’s useless.
No idea, except perhaps to say that the ones who insist on using only a priori reasoning and not occasionally getting their ‘hands dirty’ by looking at the real world are easy to dismiss as ivory tower academics who want to avoid reality. And a theory which confers no benefit in predictive or explanatory value beyond a simple statement of ‘it must be true…’ is useless. Thymology is a necessary endeavor.
And that goes back to question one, Austrians I think are the best predictors around when it comes to trends and such. You just have to understand the limits of what can be predicted. I think there’s plenty of proof for Austrian theory, however if you talk to someone whose idea of proof is more in line with Milton Friedman’s ridiculously extreme positivism, well they’ll tell you something else.
I agree with most of this. I think it’s basically what Long, Barry Smith and Selgin have distilled from Mises and Hoppe. Both of the latter tend to exaggerate the role of the a priori even though Mises never meant to deny the importance of applying economic theory to facts - repeated failure to explain certain phenomena could suggest the theory is wrong at some level, either in its premises (conceptual level) or in its deductions. He simply thought the hypothetico-deductive methodology of theorising is a piss poor attempt at acquiring knowledge in the social sciences, and to that extent I agree with him.
Exactly.
In the end you can argue epistimological limits on knowledge to the point of nihilism where nothing is really known for sure. So what? As a practical matter I still have to deal with what appears to be self awareness and a world around me. A highly technical assessment of the reasons why the methods of the empirical sciences can’t be applied to economics because the variables are just impossible to control and uncertainty, which is distinct and different from randomness, and human free will are impossible to model is one thing. As a practical matter you have to apply the theory and try and prove it out in the real world however imperfectly. Otherwise it’s nothing but an academic circle jerk.