Praxeology riddle.

Economics Economics Questions
1

Here are a few quotes, all from Mises, that seem to contradict each other.

Group A:

  1. Praxeology, the a priori science of human action, and, more specifically, its up to now best-developed part, economics, provides in its field a consummate interpretation of past events recorded …

  2. …and a consummate anticipation of the effects to be expected from future actions of a definite kind.

  3. This is the reason why history cannot predict things to come and why it is an illusion to believe that qualitative economics can be replaced or supplemented by quantitative economics. {Meaning that qualitative economics CAN predict stuff].

  4. The predictions of praxeology are, within the range of their applicability, absolutely certain.

  5. Economics can predict the effects to be expected from resorting to definite measures of economic policies. It can answer the question whether a definite policy is able to attain the ends aimed at and, if the answer is in the negative, what its real effects will be.

  6. Economics too can make predictions in the sense in which this ability is attributed to the natural sciences. The economist can and does know in advance what effect an increase in the quantity of money will have upon its purchasing power or what consequences price controls must have. Therefore, the inflations of the age of war and revolution, and the controls enacted in connection with them, brought about no results unforeseen by economics.

  7. …the public’s interest in the studies labeled as economic is entirely due to the expectation that one can learn something about the methods to be resorted to for the attainment of definite ends. The students attending the courses of the professors of “economics” as well as the governments appointing “economic” advisers are anxious to get information about the future,…

Bottom line, Group A says very clearly that economics [meaning fo course Austrian economics, what other kind is there] is great both for explaining the past and accurately predicting the future.

Group B:

  1. [Praxeological] statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts.

  2. …Neither experimental verification nor experimental falsification of a general proposition is possible in its field.

  3. Complex phenomena in the production of which various causal chains are interlaced cannot test any theory.

All the quotes in Group B contradict those in Group A. Because according to the Group A qoutes, economics and praxeology can make accurate predictions about the futre. thatś the whole point of studying economics, says Group A. And so, if economics makes a prediction that it assures us will be accurate, and the prediction does not come true, then that is a falsification of some economic principle, obviously. And yet Group B says economics cannot be falsified.

Similarly, if an economic prediction comes true a thousand times in a row [which can very well happen, says Group A], then that is a verification of the economic principle which led to the prediction. After all, physics, the queen of the sciences, is built exactly on that kind of proof. Itś called induction. This again contradicts Group B, which says there is no possible verification.

So what gives? All the quotes are from Mises himelf, in books he wrote over the years.

2

There is no contradiction. Group A says that with any given set of premises, economics can reach a conclusion that will accurately predict the future. Group B says that one cannot set experiments to test theory in economics. They are not directly related statements.

So, if an economist makes a prediction about the economy, and it turns out he is wrong, there are only two options:

  1. There is a problem with the premises - some are false or there are not enough.

  2. The argument is not valid.

If one uses AE to make a prediction and it turns out that prediction does not come true, what is happening is that the premises are flawed. We could say the argument is invalid, but then it wouldn’t be AE. Just because one cannot set up an experiment to test this does not mean that one cannot make accurate predictions about the future.

3

@Dave: I don’t mean to be obtuse but I really don’t see the contradictions… can you lay out one or two examples side-by-side?

Clayton -

4

The contradictions are in the conclusions to be drawn from the statements.

Group A says economics can make reliable, accurate predictions. In fact, that is the whole purpose of studying it. Thus, if some tenet of economics leads one to predict that, say, the sky will fall down sometime in the next five years, and a hundred years pass by and the sky does not fall down, then that tenet has not made an accurate reliable prediction, meaning it has been tested and proven false.

Group B says there is no test for the principles of economics. But according to the logical consequences of the ideas in Group A, there can exist a test, as above.

My original post also showed how it follows from the ideas in Group A that there exists verifications, which Group b denies.

5

@Dave: I typed a response and my browser ate it… I’ll re-post after I finish my pity-party.

Clayton -

6

That is not what Mises is saying. Group A is saying that AE is deductive based. Group B is saying that no experiments can be set up in economics. There is no contradiction.

If Group A makes a prediction, and it turns out to be false, then there are only 2 possibilites:

  1. The premises are wrong

or

  1. The argument is invalid

All Group B is saying is that there can be no experiments. If you want to show that something is wrong in AE, then you need to show the flaw in the premises or the flaw in the argument. If an economist predicts that there is a bubble and it will burst, and then it doesn’t happen, that doesn’t disprove AE. It just means that either the premises are false/incomplete or the argument is invalid. Mises is saying that you can only conclude that the premises are false/incomplete. In order to state that the argument is invalid, you would have to use logic to show that it is the case, not induction/observation. So, just because something doesn’t come true doesn’t mean that it is the fault of AE.

If you would prefer to use the example of the falling sky:

  1. A scientist claims that the sky will fall in 5 years

  2. The sky does not fall

Therefore

  1. Either the premises are false/incomplete or the argument is invalid

It may be the case that the argument is invalid, but Mises is saying that you can only demonstrate this with logic. If the argument is valid, then it is the fault of the premises. This means it has not been proven false.

7

Your example of the sky falling down sometime in the next five years is not the kind of prediction that economics can make. First, it contains definite quantities in space and time. Economics deals only with qualitative laws and therefore predictions. Second, in the real world you are not dealing with situations of ceteris paribus and therefore the veracity of the prediction cannot be determined unless we simply adopt post hoc ergo propter hoc. We cannot do this in regard to human action since there are only variables and no constants.

I’m fairly sure these two points address all of the concerns with the supposed contradiction in the statements of Mises.

8

@Dave:

Group A are basically saying that praxeology is like geometry and the idea of “testing” the conclusions of praxeology is as silly as “testing” a geometric theorem by drawing a figure to see if the theorem is “really true.”

Group B are saying that praxeology does make definite predictions. However, when we say “ABCT predicts economic collapse in the wake of incessant money printing by a central bank” it must be understood that what is meant by “economic collapse” is different than the common usage.

Generally, “economic collapse” is understood in terms of real prices - collapse in stock prices, explosion of commodity prices, particularly the prices of food, energy and other basic necessities. It is a strawman criticism of ABCT to say that it does not predict when this collapse will occur precisely because ABCT does not predict these variables at all.

Rather, ABCT makes specific statements about what will happen to the time-structure of capital: simultaneous over-investment and over-consumption. The result is that the capital stock will be “used up”. This prediction holds as soon as the central bank starts printing money and persists as long as it continues printing money. There is no quantitative component (time, prices, etc.) to this prediction whatsoever.

Clayton -

9

The “predictions” of praxeology hold true because they are, as Hayek says, merely tautological transformations of the assumptions from which we begin.

Thus we can “predict” that if a person walks toward one location (assumption), he will walk away from another location (tautological transformation of the assumption).

And we can “predict” that if we make a car more fuel efficient by means of making it more aerodynamic (assumption), we will make that car take longer to come to a stop under the same braking power (tautological transformation of the assumption).

The B must come with the A with “apodictic certainty” because the B is a “formal implication” of the A.

Praxeology applies this same principle beyond such physical examples, into market phenomena, and eventually into other social phenomena, such as the ethical and political realm of action.

Praxeological laws cannot be tested in the empirical sense because the regularity in question (the constant relationship between A and B) derives not from a temporal “following” of B from A, but rather from an a-temporal co-presence of B with A. If A is present, B must also be present, because B is implied in the presence of A.

Robbins:

“If the “given situation” conforms to a certain pattern [A], certain other features [B] must also be present, for their presence is “deducible” from the pattern originally postulated.”

“The analytic method is…an instrument for “shaking out” all the implications of given suppositions. Granted the correspondence of its original assumptions and the facts, its conclusions are inevitable and inescapable.”

(An Essay on the Nature & Significance of Economic Science)

The correct analogy is not between praxeology and physics, but between praxeology and mathematics. Mathematics is essentially a formal theory of “physical action.”

E.g., If I “have” 24 marbles [action A] (“having” being an intentional activity), then I have 8 groups of 3 marbles [action B].

If I “walk” 24 miles [action A], I walk 3 miles 8 times [action B].

If I “take” two marbles from my 24 marbles [action A], I will “have” 22 marbles [action B].

B is a formal implication of A, and so we can “predict” with certainty that if A happens B will happen.

These relationships cannot be tested by experiment if experiments test the relationship between two observations (two actions) as opposed to the formal implications of a single action. Praxeology does not say anything about the relationship between two actions (such as two observations). It only instructs on the formal implications of a unitary action.

10

How the hell is science and mathematics a priori? He’s wrong on that, clearly. Logic I understand, but systems of thought based on logic are not a priori; they’re clearly a posteriori.

11

How the hell is science and mathematics a priori?

Did he say science?

As for math, perhaps we learn about numbers from counting teddy bears and such in kindergarden, but that isn’t really needed. All of math needs no recourse to experiment or experience. On the contrary, it even teaches about things we can never experience, by which I mean the infinite.

…but systems of thought based on logic are not a priori…clearly…

Could you kindly explain why, as it is not clear to me at all.

Also, not sure why you copied the first quote.

12

Mathematics has historically been an exclusively a priori discipline. Only very recently with computational methods has an a posteriori mathematical discipline emerged, and it’s still considered rather heterodox.

Economics (and praxeology) is clearly not an analytic a priori discipline in the Kantian definition but Kant also argued that there is a category of knowledge which he termed synthetic a priori. (As an aside, the recently emerged field of experimental maths would be the fourth category: analytic a posteriori!). Kant’s arguments on this subject are pretty involved but I think just laying out his categories of knowledge make it pretty clear that he was right. Analytic knowledge is knowledge about abstract (non-real) things - things like geometric cubes or topological branes. Synthetic knowledge is knowledge about real (physical) things - things that are bound by the laws of physics and are (at least potentially) part of our experience. A priori knowledge is knowledge that is either true or false beforehand, that is, before any argument is made about them. A posteriori knowledge is knowledge that is only discovered to be true after some process of argument or discovery.

Conventional epistemology divides the world into two sharp categories: analytic a priori (logic, maths, etc.) and synthetic a posteriori. Kant argued that there is a third category - the synthetic a priori. This is knowledge about the real world that is either true or false before any sort of argument or discovery process (experiment). The positivists, of course, rejected the synthetic a priori as a valid category of knowledge and even though positivism has long since been discredited in every field its legacy is the eternal suspicion that any claims of synthetic a priori knowledge are subversive attempts to smuggle in religious ideology into science or spiritual beings into the clockwork Universe of maths and science.

Positivism is dead. Synthetic a priori knowledge is actually the most important category of knowledge. The act of willing (choosing) and the conscious awareness or experience of the world that arises from being human can only be properly categorized as synthetic a priori forms of knowledge. Your experience of the world is what it is (a priori, no “experiments” or “arguments” required) and it is synthetic (about the real, that is, non-abstract world). This is why a priori science is possible.

Clayton -

13

Gotlucky,

Group A says that with any given set of premises, economics can reach a conclusion that will accurately predict the future.

By premises do you mean intial assumptions, for example, the action axiom, or do you mean assumed information about reality, say that unemployment is at 10%?

All Group B is saying is that there can be no experiments.

Here is an experiment. Mises writes in HA on page 866 wrote this about a boom created by a credit expansion. “The economist knows that such a boom must result in a depression.”

OK, so when we have a boom created by credit expansion, which is a commonplace occurence all over the world at various times, we have the conditions for an experiment. If there is a depression after, that is one piece of an inductive proof of AE. If no depression occurs, AE has been refuted. Now granted that AE doesn’t claim it knows when the depression will occur. But surely if the credit expansion ends, and for fifty years after there is no depression, that would be strong indication of the wrongness of AE.

Aristipuss,

What say ye to Mises’ praxeological statement that a boom caused by credit expansion must result in a depression? Do you think Mises went beyond the limits of praxeology making such a claim, because it contains definite quantities in space and time? [Space= the country expanding credit. Time= within fifty years, which I assume he meant]. Or that it is mistaken because he forgot to include ceteris parebis disclaimers? Or that he forgot that there are only variables and no constants?

I don’t think so. I think it is a valid praxeological statement, and indeed a bold prediction to boot. Being a prediction, it is subject to experiment, as described in this post.

Clayton,

Mises’ prediction [he wrote “must”] that a credit induced boom must result in a depression was written to be understood. In other words, the word “depression” is defined within reason, and we can say [except perhaps in some borderline cases] that we either are or are not in a depression.

That being the case, we can conduct an experiment, as described earlier in this post.

Adam Knott,

The statement “A boom resulting from credit expansion must result in a depression” might be a tautology [although it is not what I was taught a tautology is], but many people dispute its veracity. AE’s insists it is true always. Thus, AE can be subjected to an experiment, as described earlier in this very post.

14

Either. I think wiktionary provides a pretty good definition here.

The problem with running an experiment is the definition: A test under controlled conditions made to either demonstrate a known truth, examine the validity of a hypothesis, or determine the efficacy of something previously untried. There is no way to control the conditions of an economic test, so it can’t really be classified as an experiment. However, I’ll grant the assumption that we can test whether a boom created by credit expansion must cause a depression.

So, Mises’ argument is modus ponens = If p, then q. In this case: If there is a boom created by a credit expansion, then there will be a depression. Nevermind 50 years, let’s assume that a depression never occurs. In other words, we would have a false conclusion. As I stated previously, if there is a false conclusion, the problem is either with the premises or the argument. Since it is modus ponens (which is always valid), we know that the flaw would be with the premises of Mises’ argument. Here are two possibilities:

  1. That all the evidence that supports the ABCT is just coincidental. There is no relation between credit expansion and economic depression.

  2. Credit expansion is a necessary but insufficient factor in economic depression.

So, if there were a credit expansion but no resulting depression, then we could say that Mises was wrong. However, the problem lies with the experiment. How much money needs to be injected into the economy? How long after the injection are we going to measure? What happens if I inject only $1 into the economy? Will there be a depression? What if I inject $100,000? $1,000,000? Does it matter how big the economy is? What if inject 1% of the existing supply in the USA, and then I try the same thing with Ireland, France, and Canada? Will the results be the same?

People can use the Theory of Relativity to predict where planets will be with incredible precision. This cannot happen with economics. We can only make general statements.

15

However, the problem lies with the experiment. How much money needs to be injected into the economy? How long after the injection are we going to measure? What happens if I inject only $1 into the economy? Will there be a depression? What if I inject $100,000?..

Enough for the boom caused by the expansion to be generally accepted as a “boom”. That’s the p in p->q.

As for what generally accepted is, although there is no clear cutoff point, there are however plenty of cases that most people would consider as generally accepted.

…incredible precision. This cannot happen with economics. We can only make general statements.

But those general statements can be proven and disproven.

16

A lot of people here seem to be falling for this Caplan-esque reasoning that Mises’s theories might be true but they are vague or imprecise without quantitative specificity. Mises says, “If there is a boom, a crash will occur” to which Caplan responds “When? If the crash if 1,500 years from now, does it really matter?”

But this misses the point entirely. The boom is the crash. It is the certificate of the underlying destruction of the time-structure of production which has been wreaked by the central bank. Peter Schiff isn’t exactly the most scholarly proponent of Austrian theory but even he says it correctly: The destruction is done during the boom, not during the subsequent crash which is only occurs once the “cat is out of the bag”, so-to-speak.

The US government is printing money like mad. They are also playing games with the reserve levels on deposit at the Fed so it’s difficult to tell exactly how fast they are printing money. But one thing we can know for sure is that this money printing is discoordinating the supply and demand for loanable funds. How this discoordination will manifest itself in the particulars (CRE collapse, student loan busts, 401(k)/IRA nationalization, etc.) is an entrepreneurial question, not an academic question. There is no theory that predicts how the bust will manifest but ABCT is not imprecise or approximate, it is certainly correct if a) logic and b) humans act. The US central bank has been gutting the structure of production in the US at a breakneck pace since 2008 and all signs are that this trend will continue at ever-faster speeds.

My specific prediction is that the US will certainly begin war hostilities against Iran. It’s already baked into the cake. If Obama starts doing poorly in the polls, we will see an early launch of hostilities before Nov. 2012. Otherwise, we will have war post-Nov. Either way, US money-printing and depradation of the US economy will continue at greater levels than ever before. A collapse is coming. I don’t know when. When it arrives, it will be sudden and severe. The Earth will open up and swallow the country whole.

Clayton -

17

Another prediction: student loan forgiveness in exchange for active-duty military service. This is why they want to delay the launch of hostilities until 2013 if possible. Get the hook in as deep as possible. When the economy collapses, there will be only one place left to turn for 3 hots and a cot: the US military. A draft is politically impossible unless we’re actually experiencing a territorial invasion… this is the new draft. Collapse the economy and leave the only option for any young person to earn their own way to be to sign up for active-duty military service.

Clayton -

18

“Do you think Mises went beyond the limits of praxeology making such a claim, because it contains definite quantities in space and time?”

It doesn’t though. He says that either the expansion of the money supply will continue and be so great that the currency loses its former function as money due to this devaluation (this is the so-called crack-up boom), or that the malinvestments will be revealed before this happens and the owners of these malinvestments will attempt to liquidate them.

In the first case does Mises ever say exactly how much monetary inflation there needs to be in order for the crack up boom to take place? In the second does he ever say the exact conditions in which the liquidation will take place (e.g. the different effects of raising the interest rate to different levels, the exact amount of time after this that the liquidation process begins)? Does he ever say exactly how much malinvestment will occur in relation to different amounts of monetary inflation and in what time frame? Not that I recall.

As Clayton noted, the key to the necessary result of a depression is in the boom itself. If monetary inflation necessarily causes malinvestments, these must be liquidated at some point - that is the depression. The only thing that could prevent them from being revealed as malinvestments is a continued expansion of the money supply, but the latter cannot prevent a depression either since it leads to the crack-up boom.

19

“The statement “A boom resulting from credit expansion must result in a depression” might be a tautology [although it is not what I was taught a tautology is],”

I believe the form of the demonstration would go something like this:

Action 1: I do X. X implies Y

Action 2: Observe Y. Y implies X

Using the prior illustrative example:

Action 1: I move toward X. This implies I move away from Y.

Action 2: I arrive at X. This implies I left Y.

Applying this principle to the business cycle:

Action 1: I observe credit expansion (X). This implies Y.

Action 2: I observe a depression (Y). This implies X.

In these examples there is no conceived temporal separation between X and Y.

The information that X or Y happened is implied in the fact that Y or X are happening now. This can’t be tested empirically, because there is no temporal separation between X and Y.

Hayek explains:

“From the fact that whenever we interpret human action as in any sense purposive…we have to define both the objects of human activity and the different kinds of actions themselves, not in physical terms but in terms of the opinions or intentions of the acting persons, there follow some very important consequences; namely, nothing less than that we can, from the concepts of the objects [X], analytically conclude something [Y] about what the actions will be. If we define an object in terms of a person’s attitude toward it [X], it follows, of course, that the definition of the object implies a statement [Y] about the attitude of the person toward the thing.” (“The Facts of the Social Sciences”)(bracketed added)

Thus, the assumption or observation that X is the case implies Y.

The assumption or observation that Y is the case implies X.

“OK, so when we have a boom created by credit expansion, which is a commonplace occurence all over the world at various times, we have the conditions for an experiment. If there is a depression after, that is one piece of an inductive proof of AE. If no depression occurs, AE has been refuted. Now granted that AE doesn’t claim it knows when the depression will occur. But surely if the credit expansion ends, and for fifty years after there is no depression, that would be strong indication of the wrongness of AE.”

The above reasoning assumes an empirical methodology which can only result in an empirical knowledge form.

Here, there are two actions supposed, and the point is that there is no necessary relationship between the content of two separate actions.

Action 1: I observe X

Action 2: I observe Y

There is no necessary relationship between the content of these actions. If I observe X in one action, this says nothing about what I will observe in another action.

I’m going to prove that the law of conservation is empirical and inductive:

“We observe a paper clip moving, which is a commonplace occurrence all over the world at various times. We have the conditions for an experiment. If we find the cause of the paper clip moving, that is one piece of an inductive proof of the law of conservation. If no cause is found, the law of conservation has been refuted. Now granted that the law of conservation doesn’t claim it knows when the cause of the paper clip moving will be found. But surely if the paper clip stops moving, and for fifty years after there is no cause found for its moving, that would be strong indication of the wrongness of the law of conservation.”

All I have done is to assume that the law of conservation is an empirical phenomenon and not an epistemological phenomenon.

If I assume that two things are empirically related, then to corroborate my assumption by example, I will present X and Y as the content of two separate actions. Then it will always be the case that no necessary relationship will be found between X and Y. If I observe a mountain today, this says nothing necessary about what I will observe tomorrow.

20

You sound like a numerologist. And here I thought Platonism was outdated. I guess not on the Mises forum.

Ok, so here we go. You’re telling me that you are born with the mathematical concept of 1,999,999,999,999,999,999,999 or say, for the sake of simplicity, 2?

Next, I do consider logic a prior because it is a method of applying induction and deduction that need not be taught and cannot be quantified. Before you isolate that previous sentence out of context, allow me to elaborate: logic CAN and often DOES lead to developing systems such as mathematics, but all manmade systems are obviously a posteriori. Need I go into a further explanation?

Hence, mathematics is a system, not a cognitive/mental/subjective construction one is born with. You really mean to tell me that an infant born with a tabula rasa knows what the number 1,999,999,999,999,999,999,999 means and what value it has in relation to other numbers? I’d love to hear your proof.