The housing boom and subsequent financial crisis, recession, and weak recovery, as well as Ron Paul’s presidential candidacy, have put the Austrian school of economics in the public spotlight, particularly among the intellectual class in the media and on the Internet. This increased attention has also meant increased criticism. One frequent charge is that Austrian economics is radically anti-empirical and cares little about putting its theories up against the reality of the world.

This criticism often focuses on Austrians’ use of “praxeology” as their term for economics. Some Austrians do indeed talk about the “a priori” nature of praxeology and how the theories it produces, such as the Austrian business cycle theory, cannot be “tested” by empirical data, which they contrast with the “apodictic certainty” of certain of their own conclusions. Such claims can be found in the work of the 20th century Austrians, such as Ludwig von Mises and, particularly, Murray Rothbard. (It is worth noting that this way of talking about Austrian theory is mostly absent in the work of F. A. Hayek.)

But it is not the case, as Josh Barro recently argued, “that Austrian economists reject empirical analysis, and instead believe that you can reach conclusions about correct economic policies from a priori principles.” To say so is to misinterpret what Mises meant by the word praxeology and therefore fail to understand what he recommended as the appropriate methods for economists. It is also to rely on interpretations of what people like Mises and Rothbard had to say, as well as the pronouncements of various advocates of Austrian economics on blogs and Internet forums, rather than engaging with the professional research being published in the peer-reviewed journals by practicing Austrians. That research offers a very different picture of the way in which Austrian economics engages the real world. Finally, as that research demonstrates, modern Austrians distinguish among “empirical evidence,” “quantitative data,” and “statistical correlation” in such a way that allows all of them, though less so the third, to play a role in their work. Rather than being anti-empirical, modern Austrian economists are trying to open up the box of what counts as “empirical evidence” to include forms normally dismissed out of hand by the rest of the profession. Arguably, then, modern Austrians might well be more empirical than other economists, at least as judged by their professional work.

Despite the impression that one might get from reading some Austrians, Mises’s term “praxeology” was not intended to be a “method” for economists. Instead, that term, which has roots in the Greek for “action,” described a field of study. That field comprised all the “sciences of human action,” or anything that dealt with humans as purposive actors rather than mere biological beings. So what today we would call economics, political science, anthropology, and sociology would all fall in this group, though human biology would not. In fact, Mises wanted to use the term “sociology” to describe these sciences of human action but thought that modern positivist sociology had corrupted the term too much for it to be valuable. Within praxeology, he argued, economics was the most well-developed branch. He used the term “catallactics” (or the “science of exchange”) to describe what we would today call economics. Catallactics was the sub-field of praxeology that studied human action involving market phenomena and monetary calculation.

Mises spends an entire chapter of Human Action on “the scope and method of catallactics.” In that chapter, he writes “the specific method of economics is the method of imaginary constructions.” This, however, was anything but fanciful; he goes on to explain how these constructions are “conceptual image[s] of a sequence of events logically evolved from the elements of action employed in its formation.”[1] One can see this in the way economists use supply and demand curves and the concept of equilibrium. These imaginary constructions are the product of logical deductions that start with the basic idea of purposive action, namely that humans seek to remove the felt uneasiness of unsatisfied ends by finding means effective for satisfying them. Mises argues that it is irrefutable that we act purposively and further argues that purposive action logically implies some important observations about human action that are just as “apodictically certain” as is the claim about action.

There is much debate among Austrians about how extensive that additional set of certain claims is. Some Austrians argue as if one can deduce all of economics in one’s armchair, but Mises was pretty clear that this core of economics was fairly limited. He points out that even the notion that labor is unpleasant is not part of that core, but rather an auxiliary assumption we make based on observation. So too is the existence of things like money. When the economist goes to analyze the world, the core toolkit that comes only from reflection on action is a rather small set of basic propositions. Most of the interesting work in economics is institutionally contingent. For example, even if we recognize the importance of being able to engage in economic calculation, our ability to do so effectively depends upon the set of institutions in the economy under analysis. Moving from what Carl Menger called “exact laws” or pure theory, to applied theory means we must include the human beliefs and social institutions of the empirical world. Going from applied theory to economic history, including contemporary analyses, we need to dig into the actual empirical record of what people did and thought, as well as the relevant economic data.

In short, Mises was making a Kantian claim about the human mind and the way in which minds are similarly structured across humans. We all have “a set of tools for grasping reality” that comes to us from our evolutionary heritage. The commonality of those tools allows us to engage in the reflection on action and the development of that core of economics as a set of necessary insights about how humans act. This core economic knowledge is not contingent but part of the very structure of human minds and is something that we can come to know.

Mises did argue that these core claims of economics (e.g., that people act purposively, that we prefer more to less and now to later, the idea of diminishing marginal utility, and perhaps the basic idea behind demand and supply curves) are not open to empirical proof because they are, or stem from, the very organizing principles of our attempts to understand the world. However, beyond that, and especially including any claims about policy, economic arguments depend upon contingent claims about human behavior and preferences, the applicability of our assumptions, and the accuracy of our chains of argument. Good economics for Austrians means sound arguments, not just valid ones. Too much of modern economics consists of valid reasoning from false premises about human action. The accuracy of those premises matter greatly for Austrians.

That is one reason why subjectivism is more important than praxeology for understanding Austrian applied research. Economics is radically subjectivist in the sense that human action depends upon the perceptions of the world held by the actor. All explanations of praxeological phenomena, i.e., any application of economics to the real world, must start with the actor and her beliefs about the world, including the limits to our knowledge and ability to optimize. As Menger wrote in the founding work of the Austrian school, “man, with his needs and his command of the means to satisfy them, is himself the point at which human economic life both begins and ends.”[2] From those beliefs, Austrians use the structure of economics to understand those choices and their consequences, especially the unintended ones.

Subjectivism also explains Austrian skepticism about statistical correlation being the privileged form of empirical evidence. It only provides correlation, and to provide causation requires a theoretical explanation. If such explanations must start with actors’ perceptions of the world, then forms of empirical evidence that capture such perceptions would be at least as useful. Austrians therefore frequently turn to primary source material and interview and survey work as well as quantitative data to tell a complete story of how a particular economic phenomenon came to be and functioned. How did actors perceive their options and constraints and what sorts of consequences emerged from their choices? That is the fundamental narrative framework for Austrian empirical work, with economic theory providing structure to the story.

Barro and other critics of Austrian economics are very quick to ignore the actual published work by modern Austrian economics that makes use of these sorts of empirical evidence. Austrian economics was part of the academic discipline of economics long before Ron Paul and the recent public attention, so if one wants to judge it, one should be looking at the work published in the professional journals and books by the dozens of Austrians teaching at universities in the United States and around the world. Most Austrian research in the last decade or two has not attempted to spin out yet more economic theory, but has used Austrian theory to offer better explanations of real-world phenomena. Although that work might be used in service of policy arguments (as is true of the work of many economists), it is usually concerned with a better understanding of some recent or past economic phenomenon.

An exhaustive list of Austrian work that attempts to confront and better explain the real world, of either the past or present, would be too long for this forum, which is part of my point. I will, however, summarize and cite a representative sample. Books by Boettke (1990) and Prychitko (1991) took detailed looks at the early years of the Soviet Union and Yugoslav self-management respectively to understand the workings of two forms of socialism. My own early research (Horwitz 1990) focused on the history of banking in the United States before the Federal Reserve, making use of primary source documents and data to explore the panics under the National Banking System.[3] Later work, such as Stringham (2003), has explored the functioning of the Amsterdam financial markets in the 17th century as a case study in the endogenous development of rules. Austrians have looked at the economies of Ireland, Somalia, and Botswana to understand economic development processes and the role played by formal and informal institutions in furthering economic growth. Coyne (2007) used core Austrian ideas to assess U.S. foreign policy and attempts at state-building in the middle east, while Leeson’s (2009) well-known work on pirates makes use of Austrian ideas to explore the way in which informal institutions arise and promote trust and social cooperation even in the hard case of criminal organizations.[4] As noted earlier, Austrians have written a large number of pieces on the Great Recession, most of which have been attempts to make sense of what happened and why by confronting Austrian business cycle theory with the historical events and data. They have often argued that while the Austrian theory is an important component of the story, the canonical version of the theory cannot explain everything.

Perhaps the most thorough and effective empirical work by Austrians in recent years is that associated with the Mercatus Center’s research project on Hurricane Katrina. Starting with a whole series of interviews conducted with Gulf residents as well as deep investigation into the events before and after the storm, Austrians produced a number of papers exploring the role of local communities and the private sector in generating recovery. Principal investigator Peter Boettke was lead author on an overview article (Boettke et. al., 2007) that appeared in the mainstream Southern Economic Journal. That piece along with the book by Emily Chamlee-Wright (2010), as well as her Rationality and Society article with Virgil Storr (Chamlee-Wright and Storr 2009), and articles by Lesson and Sobel (2007) and Horwitz (2009) exemplify this work.[5] The core insights of this work about the effectiveness of community and private recovery efforts have significantly influenced the post-Katrina narrative, arguably because they were based so thoroughly in the data generated by the interviews and the careful treatment of history.[6] They were also published in places other than explicitly Austrian journals or book series. The equally careful empirical research, both historical and contemporary, on banking by Austrian-influenced economists such as Larry White and George Selgin has moved the debate over our understanding of central banking and financial regulation. Their recent Journal of Macroeconomics paper with Lastrapes (Selgin, Lastrapes, and White 2012) on the history of the Fed is a good example, especially of how to make good use of quantitative data.[7]

All of this research is quite “falsifiable,” if by that we mean “open to revision by later researchers,” including other Austrians who come up with new or better data or better explanations for the phenomena in question. There is nothing “a priori” or “apodictically certain” about this work. Instead, Austrians are trying to open up what counts as “empirical” to a broader range of evidence than is methodologically permissible in the mainstream of economics. Austrians can make use of econometric evidence in a limited and careful way (and a few have), but they are more likely to make use of primary source historical evidence and non-econometric quantitative data to make their arguments. Mises and others rightly pointed out that statistical correlations are purely historical data, just like the qualitative data we find interviews and newspapers, and therefore should have no greater role than those other forms of data in doing historical analysis.

Despite the pretensions of many mainstream economists, their empirical studies, including newer work in experimental economics, do not have quite the same scientific power as experiments in the natural sciences do. Deirdre McCloskey’s cautions about the significance of statistical significance are to the point and often ignored by economists. As she argues, what we want is economic significance, not just statistical significance, and that is a point on which Austrians would agree. For Austrians, the goal is to provide economic analyses that use empirical evidence that is economically significant. Rendering human action intelligible means telling better stories about what happened and why. Economic theory provides the framework for organizing the plot, and the richness of the human experience, whether in the form of primary sources, interview and survey data, economic statistics, or econometric correlations, provides the particulars that make for a complete and empirically relevant story. Basing it all on realistic and empirically relevant assumptions about human knowledge and choice makes it not just valid, but sound economic reasoning.

Austrian economics is not, despite what critics argue, anti-empirical. The core of its theory emerges from what we can know empirically about human beings, both universally and in the particulars of a context of application. That theory is then used to offer a better understanding of history and contemporary events by organizing a wide range of empirical data into a coherent narrative that renders those events intelligible. We can never have the knock-down power of the scientist’s laboratory (though even there, rhetoric and storytelling matter a great deal), so the best we can do as economists is tell better-organized, more richly empirical, and more logically valid stories. If we economists limit ourselves to just econometric evidence, we are cutting ourselves off from important parts of the empirical world, and it is those who do so, and not the Austrians, who are being insufficiently empirical.

Notes

[1] Ludwig von Mises, Human Action, Chicago: Rengery, 1966, p. 236.

[2] Carl Menger, Principles of Economics, New York: NYU Press 1981 [1871], p. 108.

[3] Peter J. Boettke, The Political Economy of Soviet Socialism: The Formative Years, 1918-1928, Boston: Kluwer Academic Press, 1990; David L. Prychitko, Marxism and Workers’ Self-Management, Westport, CT: Greenwood Press, 1991; Steven Horwitz, “Competitive Currencies, Legal Restrictions and the Origins of the Fed: Some Evidence from the Panic of 1907,” Southern Economic Journal 56(4), January 1990.

[4] Edward Peter Stringham, “The Extralegal Development of Securities Trading in Seventeenth Century Amsterdam.” Quarterly Review of Economics and Finance 43(2) Summer 2003. Christopher J. Coyne, After War: The Political Economy of Exporting Democracy, Stanford: Stanford University Press, 2007; Peter Leeson, The Invisible Hook: The Hidden Economics of Pirates, Princeton: Princeton University Press, 2009.

[5] Peter J. Boettke, Emily Chamlee-Wright, Peter Gordon, Sanford Ikeda, Peter Leeson, and Russell Sobel, “The Political, Economic, and Social Aspects of Katrina,” Southern Economic Journal 74(2), 2007; Emily Chamlee-Wright The Cultural and Political Economy of Recovery: Social Learning in a Post-Disaster Environment, New York: Routledge, 2010; Emily Chamlee-Wright and Virgil Storr, “Club Goods and Post-Disaster Community Return,” Rationality and Society 21(4), 2009.

[6] Russell Sobel and Peter Leeson, “The Use of Knowledge in Natural Disaster Relief Management,” The Independent Review 7(4), Spring 2007; Steven Horwitz, “Wal-Mart to the Rescue: Private Enterprise’s Response to Hurricane Katrina,” The Independent Review 13(4), Spring 2009, pp. 511-28. Numerous examples of the Katrina research can be found in Emily Chamlee-Wright and Virgil Storr, eds., The Political Economy of Hurricane Katrina and Community Rebound, Northampton, MA: Edward Elgar, 2010.

[7] George Selgin, William Lastrapes, and Lawrence H. White, “Has the Fed Been a Failure?” Journal of Macroeconomics 34(3), September 2012.

Steven Horwitz’s defense of Austrian empirics makes several sensible points:

1. Some Austrians have no methodological objection to empirical work.
2. Mainstream economists have a dogmatic, narrow view of what counts as “empirical evidence.”
3. Some Austrians have done good empirical work.

Unfortunately, Horwitz combines these sensible points with a serious case of what my colleague Daniel Klein calls “myside bias.”[1] Horwitz is right to point out neglected Austrian achievements, but trivializes major Austrian shortcomings. He is right to point out mainstream economists’ methodological blinders, but neglects two decades of the mainstream’s growing methodological pluralism.[2] He is right to emphasize the importance of actors’ beliefs, but neglects behavioral economists’ tremendous progress in empirically studying actors’ beliefs. Last, Horwitz doesn’t even consider an awkward fact about recent Austrian empirical work: There’s nothing distinctively “Austrian” about it. Austrians like Peter Leeson and Chris Coyne are achieving mainstream academic success by making claims mainstream economists can accept without further ado. Good for the Leesons and Coynes of the world. But if Austrians can translate their empirical insights into mainstream language and sell them to a broad audience, why don’t they use mainstream language in the first place? Austrian contributions will continue to be undervalued as long as they continue to spend most of their time talking to each other in their own eccentric dialect.

Major Austrian Shortcomings

Horwitz admits that some Austrians are methodologically hostile to empirical economics. But he paints these Austrians as an irrelevant fringe:

Austrian economics was part of the academic discipline of economics long before Ron Paul and the recent public attention, so if one wants to judge it, one should be looking at the work published in the professional journals and books by the dozens of Austrians teaching at universities in the United States and around the world.

Critics like Josh Barro are mistakenly relying on “the pronouncements of various advocates of Austrian economics on blogs and Internet forums, rather than engaging with the professional research being published in the peer-reviewed journals by practicing Austrians.”

But what would Barro discover if he followed Horwitz’s advice? There are two main outlets for distinctively Austrian research. The first, The Review of Austrian Economics, was edited by Rothbardians for its first ten years (1987–1997) before passing to other Austrians more to Horwitz’s liking. The second, The Quarterly Journal of Austrian Economics, has been edited by Rothbardians since its inception in 1998, and is still being published. Similar Rothbardian/non-Rothbardian ratios hold for Austrian books. Critics could reasonably conclude that Austrian resistance to empirical research is even worse than they imagined.

Horwitz might protest that Rothbardians aren’t “real Austrians” or “real academics.” But they might say the same about him.[3] Outsiders’ natural reaction isn’t to take sides, but to note that self-styled Austrians are earnestly debating the relevance of empirical evidence. How can anyone blame these outsiders if they conclude that Austrians are exceptionally hostile to empirics?

Mainstream economists will be even more puzzled by Horwitz’s take on Mises:

Some Austrians argue as if one can deduce all of economics in one’s armchair, but Mises was pretty clear that this core of economics was fairly limited. He points out that even the notion that labor is unpleasant is not part of that core, but rather an auxiliary assumption we make based on observation. So too is the existence of things like money.

Horwitz correctly describes Mises’ position.[4] Yet unless you’re an Austrian, the position Horwitz ascribes to Mises sounds extremely unempirical: He builds economics on a short list of “apodictic truths,” adds a few banal empirical assumptions like, “there is disutility of labor” and “money exists,” then claims to deduce lots of substantive conclusions that are definitely true as long as all the banal assumptions are true. Given Horwitz’s sympathetic discussion of Mises, one has to wonder how far Horwitz really is from the armchair deductivists he dismisses.

Behavioral Economics: The Triumph of Subjectivism

Horwitz tells us that:

Austrians are trying to open up what counts as “empirical” to a broader range of evidence than is methodologically permissible in the mainstream of economics. Austrians can make use of econometric evidence in a limited and careful way (and a few have), but they are more likely to make use of primary source historical evidence and non-econometric quantitative data to make their arguments.

Like Horwitz, I often find mainstream economists methodologically dogmatic. But I haven’t found Austrians to be any better. While each group has some open-minded members, both tend to dismiss certain kinds of evidence. When I present my evidence on voter irrationality[5] for example, Austrians often respond with lectures about the “rationality of all human action” or even Hume’s problem of induction.

Horwitz could rightly reply that Austrians are becoming less dogmatic. But the same holds for mainstream economists. Over the last two decades, many mainstream economists have embraced surveys, interviews, and narrative history.[6] Even more importantly, mainstream economists have embraced empirical psychology. Horwitz is correct to point out that some Austrians have adopted some of these tools as their own. But plenty of other Austrians view them with indifference or hostility.[7]

Austrians’ lack of interest in empirical psychology is especially telling. Horwitz highlights the importance of “subjectivism”:

Economics is radically subjectivist in the sense that human action depends upon the perceptions of the world held by the actor. All explanations of praxeological phenomena, i.e., any application of economics to the real world, must start with the actor and her beliefs about the world, including the limits to our knowledge and ability to optimize.

All true. But Horwitz ignores the existence of a massive intellectual movement that spent the last forty years developing these insights: behavioral economics.[8] If you really want to learn about human’s “beliefs about the world,” the “limits of our knowledge,” or our “ability to optimize,” read Daniel Kahneman’s magnum opus Thinking, Fast and Slow. Kahneman elegantly and carefully explains dozens of major discoveries about how people think. Compared to this fountain of knowledge, Austrian talk about subjectivism is empty generalities.

What’s “Austrian” About Austrian Empirics?

Horwitz points our attention to the recent success stories of Austrian empirics. We have several Austrian teams’ work on Hurricane Katrina. We have Edward Stringham’s work on endogenous rule formation. We have Chris Coyne’s analysis of foreign policy. We have Peter Leeson’s work on pirates (and much much more). It is easy to see why Horwitz would present this work to mainstream economists and proudly say, “Look what we Austrians have been up to lately.”

My question: How would Horwitz respond if mainstream economists replied, “Sure, it’s great work. But what’s Austrian about it?” Take Peter Leeson’s work on pirates. Is he using the fascinating topic of piracy to convince readers that the Austrian framework explains the world economy better than textbook microeconomics? No. For all its virtues, Leeson’s project is modest and orthodox: using textbook microeconomics to explore the fascinating topic of piracy. Historians of thought unaware of Leeson’s pedigree might completely miss his Austrian origin story. Most would conclude that Leeson’s main inspiration was the Journal of Law and Economics, circa 1970–1990. That was a great era for economics, but few who lived through it saw much “Austrian” about it.

Austrians are wise to embrace their school’s recent empirical work. But where does it all end? Yes, Austrians can continue to learn interesting things about the world, explain their findings in mainstream language, and rise in the economics profession. But if that’s all you do, what’s the point of calling yourselves “Austrians”? What’s the point of mastering Austrian concepts and terminology you barely mention in your actual publications?

The obvious reply is, “Austrian concepts and terminology help us understand the world.” If that’s so, why don’t Austrians focus on empirical questions we can’t answer without their unique concepts and terminology? The Austrian empirics that Horwitz urges us to read for ourselves show that Austrians can do very good empirical research. What these empirics don’t show is that uniquely Austrian insights make empirical research better.

Notes

[1] Daniel Klein. “I Was Wrong, and So Are You.” The Atlantic, December 2011.

[2] Horwitz does however acknowledge this progress in his interview with The Daily Bell: “Those who control the levels of power in the discipline don’t think we are completely scientific in many cases. They are better than they were 25 years ago in graduate school, though.”

[3] At least in his interview with The Daily Bell, interestingly, Horwitz comes far short of disowning Rothbardians: “They do some things in academia but they also have public outreach, publish online, provide resources on their website and are involved in broader libertarian politics. The folks at the Mises Institute are more skeptical about academia; they tend not to believe that that’s where the fight is. They don’t try to engage the mainstream in economics. They are in their own world with respect to academic economics. It did surprise me somewhat that they were upset given that they haven’t made academics their primary focus and GMU has. But, hey, who’s leading the charge in academia; it’s these guys over here [George Mason University-connected Austrian economists].” Walter Block accuses Horwitz of wanting to purge his intellectual opponents, but does not actually advocate purging Horwitz: “Had I followed the path of the Horwitzs of the world, I would have long ago broken with Hoppe, Demsetz, Murphy, Machaj, Davidson, Howland, Bagus and others with whom I have disagreed.” Walter Block, “Contra Horwitz,” LewRockwell.com, January 2010.

[4] And Murray Rothbard’s position as well. See e.g. Murray Rothbard, Man, Economy, and State. Auburn, AL: Ludwig von Mises Institute, 2009, p.43n27.

[5] See. e.g. Bryan Caplan, The Myth of the Rational Voter: Why Democracies Choose Bad Policies. Princeton, NJ: Princeton University Press, 2007.

[6] A few prominent examples of mainstream research using surveys, interviews, and/or narrative history: Edward Glaeser, David Laibson, José Scheinkman, and Christine Soutter, “Measuring Trust.” The Quarterly Journal of Economics 115(3), 2000: 811–846; Edward Glaeser and Bryce Ward, “Myths and Realities of American Political Geography,” NBER Working Paper No. 11857, 2005; Alan Blinder, Elie Canetti, David Lebow, and Jeremy Rudd, Asking About Prices: A New Approach to Understanding Price Stickiness. New York: Russell Sage Foundation; Truman Bewley, 1998; Why Wages Don’t Fall During a Recession. Cambridge, MA: Harvard University Press, 1999; George Akerlof, William Dickens, and George Perry, “The Macroeconomics of Low Inflation.” Brookings Papers on Economic Activity 1, 1996, pp.1–76; Gordon Tullock, The Social Dilemma of Autocracy, Revolution, Coup d’Etat, and War. Indianapolis, IN: Liberty Fund, 2005.

[7] See e.g. Austrians’ reaction to my introspective defense of the concept of indifference.

[8] Daniel Kahneman, Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2012. See also Richard Thaler, The Winner’s Curse: Paradoxes and Anomalies of Economic Life. Princeton, NJ: Princeton University Press, 1994.

I cannot help sympathizing with Steve Horwitz’s desire to defend Austrian economics generally, and what Mises called “praxeology” in particular, from its detractors, and particularly from those of its detractors who insist, as Josh Barro does, “that Austrian economists reject empirical analysis, and instead believe that you can reach conclusions about correct economic policies from a priori principles.” Years ago I myself wrote a defense of praxeology, or rather of Mises’s views regarding the scope and method of praxeology; and although my essay’s intended targets were themselves members of the Austrian school, rather than outside critics of that school, I also believed that Mises had been misunderstood by those who took him to be saying that economists need never trouble themselves with history generally and hence with “empirical analysis.”[1]

Today, though, notwithstanding Steve’s counter-arguments, I’m afraid that I’m inclined to think that Mr. Barro has a point. He has a point, both because his claim seems to be in perfect agreement with many of Mises’s own claims about praxeology, and because in practice, notwithstanding the exceptions Steve mentions, many self-styled Austrians, including some who have perhaps the best claim to being consistent practitioners of the methods of which Mises approved, do in fact “reject empirical analysis” as a basis for drawing conclusions about the consequences of alternative economic policies either by condemning such analysis outright or by simply not resorting to it.

In defending Mises himself, and what Mises called praxeology, against the charge of being “anti-empirical,” Steve observes that for Mises, “‘praxeology’ was not intended to be a ‘method’ for economists,” and that while “[s]ome Austrians argue as if one can deduce all of economics in one’s armchair …Mises was pretty clear that this core of economics was fairly limited.” But while it is true that Mises generally employed the term “praxeology” to refer to a field of study rather than a method or set of methods, he also wrote things like

Praxeology is a priori. It starts from the a priori category of action and develops out of it all that it contains.

and

Praxeology is a priori. All its theorems are products of deductive reasoning that starts from the category of action…. What praxeology asserts with regard to human action in general is strictly valid without any exception for every action…. Every theorem of praxeology is deduced by logical reasoning from the category of action. It partakes of the apodictic certainty provided by logical reasoning that starts from an a priori category.

and

They [praxeologists] refer to experience only in order to separate those problems that are of interest for the study of man as he really is and acts from other problems that offer a merely academic interest.[2]

It is, for me at least, impossible to read such statements—and one can find many more like them—as not suggesting, first of all, that the term “praxeology” denotes not merely a field or fields of study but the one and only correct method for arriving at, not just a small part of, but “all” of the “valid” conclusions that the study is capable of yielding, and, second, that this method consists of deductive reasoning from a priori premises. It is therefore not simply owing to careless misreading of Mises that Murray Rothbard could write a highly influential essay titled “Praxeology: The Methodology of Austrian Economics,” devoted to arguing that praxeology consists of nothing other than “the logical implications of the universal formal fact that people act, that they employ means to try to attain chosen end.”[3]

Does this mean that Steve himself misunderstands Mises in insisting that his view of economics was not “radically anti-empirical”? It doesn’t, because at bottom the difference between what Steve is saying and what Mises appears to be saying boils down to a matter of semantics. For Mises and Rothbard, and for many other Austrian economists, the term “economics” means what is elsewhere referred to as theoretical economics, at least when they use it in the course of a methodological pronunciamiento. That is, it means (as Mises indicates in one of the passages quoted above) the set of extant economic theorems. Understood this way, the claim that “economics” is a purely deductive undertaking ought not to strike even the most mainstream of economists, or anyone who has worked through a standard graduate microeconomics text, as particularly controversial, let alone absurd.

But for most of us, Steve included, “economics” doesn’t just mean pure economic theory or analytical economics. It also means applied economics, which includes everything from economic history to economic policy appraisal to econometrics. In other words, it includes all the economics into which empirics—the facts of experience—enter. So when Steve says that Mises wasn’t anti-empirical, he means that Mises did not think empirics irrelevant for what we call applied economics, whereas when Rothbard defends Mises’s claim that economics is a purely deductive science, he means that purely theoretical economics is so. There need not, in other words, be any contradiction between the two understandings of the nature of economics, Austrian or otherwise.

It doesn’t follow, though, that an overwhelming majority of self-styled Austrian economists, or even of those possessing bona fide academic status, understand or write as if they understand that the “economics” Mises and Rothbard have in mind when speaking of economics as a body of deductions from a priori premises refers only to the “core” of the discipline and not to the broader enterprise of applied economics. Steve, it is true, supplies several examples of research that he claims uses “Austrian theory to offer better explanations of real-world phenomena,” and he could no doubt supply many others. Still he hasn’t convinced me that Austrian economics as such is not guilty of being at least relatively, if not resolutely, anti-empirical.

For one thing, I note that almost all of the examples he supplies of empirical Austrian economics come from George Mason graduates who, like himself, were heavily influenced, directly or indirectly, by the work of the late Don Lavoie. (The one exception—the article on the Fed written by myself, Bill Lastrapes, and Larry White is at most only one-third Austrian.) But just how “Austrian” are these examples? Professor Lavoie was nothing if not eclectic in his approach to economics, and so left his students with an appreciation, for praxeology certainly, but also for hermeneutics and, in his last years especially, economic history, among many other things. It is, I believe, that eclectic approach rather than Austrian economics as expounded by Mises, or even by Hayek, that is reflected in the empirical work to which Steve refers. That of course doesn’t mean that one shouldn’t refer to such work as Austrian economics, or to its authors as Austrian economists. But it does mean that the work may not be representative of broader Austrian-school tendencies.

Discerning those broader tendencies requires, for one thing, that one consider the large body of writings by those Austrians who with some justice claim to be the strictest of all adherents to Mises’s methodological views—writings that are by no means confined to Internet forums. This includes work by Israel Kirzner, by Murray Rothbard, and finally by those Austrians whose books are published by the Ludwig von Mises Institute or who publish in its Quarterly Review of Austrian Economics.

Although I do not hesitate to include myself among the admirers of Professor Kirzner’s writings, and of his writings on entrepreneurship in particular, I do not think it can be denied that those writings are, to put it mildly, short on empirics, by which I mean not simply short on regressions and that sort of thing but short even on historical illustrations. Roger Koppl, himself a highly regarded Austrian school economist, finds that this has generally been true of Austrian writings on entrepreneurship—a major area of Austrian research:

Austrian economists have probably devoted too little effort to empirical work in the past. This trend has changed radically in the last few years…. Nevertheless, Austrian economics is still not very well endowed with empirical findings. [Other S]cholars of entrepreneurship, by contrast, have been very energetic in confronting theory with the facts of history.[4]

Murray Rothbard’s case is particularly revealing. Although he was an uncompromising praxeologist, far from thinking “empirics” unimportant, he wrote extensively on economic history. Yet even Rothbard’s historical writings, or some of them at any rate, only serve to underscore the often aggressively anti-empirical nature of his economics. America’s Great Depression, for example, is largely devoted to showing how the Hoover administration contributed to the Great Depression by persuading businessmen to resist cutting prices. Yet the theoretical framework that takes up the book’s opening chapters is, as Rothbard himself indicates, one which supports “[t]he Austrian policy of refraining at all times from monetary inflation” (my emphasis). Thus Rothbard the Austrian praxeologist is led, by a chain of deductive reasoning starting from the action axiom, to deny the potential utility of monetary expansion even under circumstances which, according to Rothbard the historian, made severe unemployment inevitable in the absence of such expansion.

Both Rothbard and too many other Austrian economists to count are also led to conclude, praxeologically as it were, that despite the evidently depressing effects of monetary contraction when combined with policies aimed at preventing prices from falling, the Great Depression was mainly the inevitable result, not of such monetary contraction after 1929, but of excessive monetary expansion beforehand. Empirics, and statistics especially, are neither needed to reach this conclusion nor capable of refuting it:

[S]tatistics can prove nothing because they reflect the operation of numerous causal forces. To “refute” the Austrian theory of the inception of the boom because interest rates might not have been lowered in a certain instance, for example, is beside the mark. It simply means that other forces—perhaps an increase in risk, perhaps expectation of rising prices—were strong enough to raise interest rates. But the Austrian analysis of the business cycle continues to operate regardless of the effects of other forces. For the important thing is that interest rates are lower than they would have been without the credit expansion. From theoretical analysis we know that this is the effect of every credit expansion by the banks; but statistically we are helpless—we cannot use statistics to estimate what the interest rate would have been. Statistics can only record past events; they cannot describe possible but unrealized events.[5]

But is the fact that, when credit expansion takes place, interest rates are lower than they would otherwise be, really the only “important” thing? Allowing, as Rothbard would certainly allow, that the Austrian boom-bust theory is only applicable to circumstances in which credit expansion has indeed taken place, and that the Austrian theory is logically valid, does the mere fact that credit expansion did indeed take place during the latter 1920s suffice to establish that the theory “explains” the Great Depression, either wholly or in part? If we cannot, as Rothbard insists, employ statistics to tell us how much difference the expansion made, then how can we know that the difference it made wasn’t trivial, and that the true causes of the depression must consequently be sought elsewhere? How, in other words, can we tell that the theory is not just logically valid but actually useful in explaining any particular episode for which it might be relevant?

The praxeological—which is to say, Misesian and therefore “Austrian”—view of empirics suffers from its implicit assumption that quantities are irrelevant, not merely for constructing economic theories, but for doing applied economics. Empirics then serve only to determine which theories are applicable to which events:

Into the chain of praxeological reasoning the praxeologist introduces certain assumptions concerning the conditions of the environment in which an action takes place. Then he tries to find out how these special conditions affect the result to which his reasoning must lead. The question whether or not the real conditions of the external world correspond to these assumptions is to be answered by experience. But if the answer is in the affirmative, all the conclusions drawn by logically correct praxeological reasoning strictly describe what is going on in reality.[6]

As for statistics, “As far as there is discernible regularity in the succession of phenomena, no recourse to [them] is needed” either for constructing theories or for determining their applicability to particular historical instances. Those who imagine otherwise overlook the fact that there are no such things as “statistical laws” (with their implied, underlying numerical constants) governing economic events.

But Mises’s belittlement of statistics, and econometrics especially, as mere “childish play with figures that does not contribute anything to the elucidation of the problems of economic reality,”[7] true as it may be for a very large share of econometric research, overlooks the fact that there is something between merely checking to see whether an occurrence satisfies all of the “contingent claims” needed to apply a particular theory to it, and pretending that you can construct economic theories using regression coefficients. What’s in between is trying to arrive at an informed estimate of just how much of any observed phenomenon an applicable theory explains and, when there are several equally applicable theories, their relative worth. By how much were interest rates driven below their “natural” levels as a result of the open-market purchases and discount rate reductions that took place between 1922 and 1928? How much additional investment activity can be attributed to the difference? How great was the substitution of more capital intensive or “roundabout” investment activities for less roundabout ones? (How, indeed, might one quantify roundaboutness?) How, finally, does the scale of consequences statistically attributable to the mechanism described by the Austrian theory compare to that attributable to, say, the monetarist theory, which blames the depression on monetary contraction? To be sure, some self-styled Austrians have attempted to answer these and related questions. But in doing so, they can hardly be said to strictly heed Mises’s strictures concerning the limited relevance of statistics and econometrics for elucidating economic reality. And who will not suppose that, had it not been for those strictures, many more such attempts—and probably some more successful ones—might have been undertaken?

In short, while Mises and other Austrians have a point when they insist that “historical experience… can never falsify any [economic] theorem in the way a laboratory experiment can do with regard to the statements of the natural sciences,” they err in taking this to mean that experience—and experience captured in statistics especially—cannot tell us that some theories that are both logically valid and potentially pertinent are nevertheless false in the (common) sense meaning that they do not really explain what someone claims they explain, or explain far less than some alternative. And it is precisely when it comes to demonstrating the explanatory oomph of their theories that Austrians lag behind other sorts of economists.

With regard to this last observation, I feel compelled to say that I think Steve comes dangerously close to missing the point of Deirdre McCloskey’s “cautions about the significance of statistical significance.” It is true that those cautions have mainly been meant for non-Austrian economists; but that only goes to show that Austrians run relatively few regressions: to judge from the cases I’ve seen, when Austrians do run regressions, they are as likely as any other economists to be guilty of the offense McCloskey cautions against—of confusing statistical with economic significance. But McCloskey’s point isn’t that economic regressions generally lack “scientific power,” and it is still less that they needn’t be employed at all so long as one can otherwise tell a good story. She means rather that magnitudes—many of which can only be estimated by running regressions of some sort—are precisely what matter most for establishing the “power” of a theory or hypothesis.

Notes

[1] Selgin, George. “Praxeology and Understanding: An Analysis of the Controversy in Austrian Economics,” Review of Austrian Economics 1988: 19–58.

[2] The quotations all happen to come from The Ultimate Foundations of Economic Science: An Essay on Method (Princeton, New Jersey: D. Van Nostrand Company, Inc., 1962), pp. 41 and 44. But many others like them can easily be found in Mises’s other works.

[3] Murray N. Rothbard, “Praxeology: the Methodology of Austrian Economics.” In Edwin Dolan, ed., The Foundations of Modern Austrian Economics (Kansas City: Sheed and Ward, 1976), pp. 19–39.

[4] Roger Koppl, “Gains from Trade between Austrian Economics and Entrepreneurial Studies: An Introduction to the Volume.” In idem, ed., Austrian Economics and Entrepreneurial Studies: Advances in Austrian Economics 6 (2003), p. 3.

[5] Murray N. Rothbard, America’s Great Depression, 5th ed. (Auburn, AL: The Ludwig von Mises Institute, 2000), p. 85.

[6] Mises, Ultimate Foundations, p 44.

[7] Ibid., p. 63.

As an econometrician and mathematical modeler, what I’ve come to love about Austrian economics is that it is a complementary approach to thinking about economics. I find Steve Horwitz’s discussion of praxeology versus empiricism akin to that of the Protestants and Catholics during the Reformation—I don’t want to have to choose between one side and the other because neither is complete, and each has unique value to recommend itself. I have also come to appreciate that the Austrians have good cause to be skeptical of mathematical and statistical analysis, though it is possible that much of their apparent disdain for statistics comes from a conflation of macroeconomics and econometrics. Macroeconomics gets such a lion’s share of press that non-economists have come to regard macroeconomics as synonymous with economics. And among economists, macroeconomics is viewed as the sub-discipline most divorced from behavioral theory, thereby putting it on a collision course with the Austrian mode of thought. Macroeconomics has no truck with individual behavior, and it makes heavy use of quantitative methods. By association, quantitative methods have seemed to become, to Austrians, the enemy.

Austrians can also take issue with microeconomics’ fixation on equilibria as an attained and static end rather than, as Austrians would have it, a target to which the market heads and which entrepreneurial action continually shifts.[1] However, as does Austrian thought, microeconomic theory begins from first principles: humans are rational agents who seek to maximize utility by choosing from among alternatives subject to constraints. Some Austrians take issue with whether we can even discuss utility, having an aversion to models that rely on cardinal utility.[2] Others hold that mainstream microeconomic models appearing to employ cardinal measures do so only as a matter of convenience and that what is truly at their core is ordinal utility.[3] While employing different languages, Austrian economics and traditional microeconomics at least embrace the same love of logical argument.

Traditional macroeconomics, conversely, brushes aside behavior with a call for the need to aggregate. Gone are choosy humans seeking satisfaction in the face of constraints. Replacing them is the aggregation of all consumers into that non-existent creature, homo-homogenous, with the only nod to behavior being the truism that income not spent is saved. The four-sector Keynesian model from which mainstream macroeconomic thought arises is not a behavioral model but an accounting identity. The macroeconomic thought based on this view of economics is internally consistent but rarely does anyone, apart from the Austrians, question whether the model has any connection to reality. Why break the economy into sectors by spending rather than by income or some other measure? If we are wedded to a spending approach, why break the economy into sectors according to who is spending rather than according to on what they are spending? Why treat all spending as if it were equivalent, thereby making a dollar spent on mud pies as valuable as a dollar spent on apple pies? There exists a negative halo effect wherein dislike of the approach macroeconomics takes to modeling the economy extends to the quantitative tools the discipline employs.

The counterargument, as Krugman recently put it, is that Austrian economists’ eschewing of mathematical modeling leads to sloppy thinking.[4] There is something to be said for Krugman’s critique. Sentences are subject to interpretation; words have multiple nuances. Ironically, Horwitz’ core claim is that people have misinterpreted what Mises meant by praxeology. Mathematics suffers neither of these failings. In the opening lecture in mathematical modeling, I tell my students, “Nothing is better than cake,” and point out that the sentence has two equally valid though contradictory meanings. The mathematical representation, however, leaves no ambiguity as one must choose to translate the sentence as either

U(cake) > U(g) ∀ g ∊{consumption goods}

or

U(∅) > U(cake)

The other side of this argument is that the first step in mathematical modeling is to create an abstraction. Everything one does from that point forward, no matter how mathematically brilliant, remains in that state of abstraction. Abstraction does not, as some critics argue, make the resulting economic theory meaningless. However, mathematical economists can spend so much time ensconced in their models that, by the time they arrive at a solution, they have forgotten the caveat that the solution is entirely dependent on the abstraction not having culled subtle but important realities. One such subtle reality is the existence of entrepreneurs—something that mainstream economics seems to have only recently discovered, but which has been a core part of Austrian thought from the start.[5]

Statistical analysis is supposed to be the companion to mathematical modeling, each dutifully keeping the other within earshot of reality. Unfortunately, the advent of ubiquitous data and computing power has allowed statistical analysis to go gamboling along on its own, unaccompanied by theory. Once taboo among econometricians, data mining has, with important caveats, become an accepted technique for model building.[6] Data mining is a powerful tool when used as the first step in the scientific method (observe, hypothesize, test, reject or fail to reject). Unfortunately, there is also a growing acceptance of the use of data mining in the second and third steps, wherein statistical significance is used to select from among competing hypotheses. This practice, which when done by hand is sometimes called “data peeking,” can introduce significant bias into statistical tests. The practice is most prevalent where there is no underlying theoretical model—that is, in cases that, to Austrian thought, would not even constitute an economic argument, let alone a valid argument. Mathematical modeling that abstracts too far from reality and statistical analyses that become unhinged from theoretical models are good reasons for Austrians to be skeptical of quantitative analysis.

But in their skepticism, Austrians miss an opportunity to use statistical analysis to refute non-Austrian claims. If, as Keynesians have it, government spending increases economic activity, then quantitative analysis should show GDP growth accelerating following acceleration in government spending. If raising tax rates increases tax revenues, then we should see clear evidence in the data. In shunning empirical arguments, Austrians miss the opportunity to push non-Austrians to the wall in the opposition’s own vernacular. Whether, as Horwitz claims, Austrian economics is not anti-empirical I cannot say. I do know that the quantitative analysis of mainstream economics and the logic of Austrian economics are both tools that can reveal truth. If Gödel’s incompleteness theorem applies to economics, then the truths we seek are larger than any tool we might bring to bear. Those who can see Austrian logic and quantitative analysis as complementary tools will travel farther down the path to truth than will those who view them as competing paradigms.

Notes
[1] Peter J. Boettke, “Where did economics go wrong: Modern economics as a flight from reality.” Critical Review 7(1): 11–64, 1997.
[2] Walter Block, “Austrian theorizing: Recalling the foundations.” Quarterly Journal of Austrian Economics 2(4), 21–39, Winter 1999.
[3] Bryan Caplan, “The Austrian search for realistic foundations.” Southern Economic Journal 65(4): 823—38.
[4] Paul Krugman, “The conscience of a liberal: Martin and the Austrians.” The New York Times, April 7, 2010.
[5] Israel Kirzner, Competition and Entrepreneurship. Chicago: University of Chicago Press, 1974.
[6] Deirdre Nansen McCloskey and Steve Ziliak, The Cult of Statistical Significance: How the Standard Error Costs Us Jobs, Justice, and Lives. Ann Arbor: University of Michigan Press, 2008.

Bryan Caplan has long been a thoughtful and forceful, and sympathetic, critic of Austrian economics, which is exactly why I was worried about having him as one of my discussants. He never makes life easy on the targets of his critical eye. And his reply raises a large number of substantive points in a fairly short space. In the interest of shooting for depth of conversation, I will not try to reply to all of them, but instead address what I see as the major ones, including several points that I agree with but could not adequately address in my lead essay.

Let me tackle two broad points first. I will confess to some “myside bias.” I wanted to present what I thought was something of an aggressive defense of modern Austrian economics if for no other reason than to put all of those issues on the table for discussion. As Caplan points out, I have argued that the mainstream is more open to Austrian work than it was 25 years ago, though I think that change is marginal. The fact that work by Austrians is getting published in mainstream outlets is some evidence of that point, but it might also be evidence that recent generations of Austrians are more interested in doing broadly empirical work and are better at finding the evidence to support Austrian propositions than were their predecessors. I will return later to the question Caplan raises about whether that work is truly “Austrian.”

Second, Caplan is quite correct to highlight the importance of behavioral economics. My neglect of that topic in my original essay was not because I don’t think it’s important or relevant, but just that it opened up a whole other element that I simply didn’t have space for. That said, I think Austrians ought to be engaged with that literature for a whole variety of reasons. The most important, in my mind, is that it challenges Austrians (and others) to understand how markets function with actors who are not the mainstream’s picture of rationality. It is a very Austrian project, I would argue, to look at the role played by institutions in enabling humans with all the cognitive biases we know they have to nonetheless find ways of coordinating in a world of uncertainty, especially given that Austrians have long rejected the version of rationality that the behavioral economists’ results question as well. Vernon Smith’s work on “ecological rationality” is relevant here and Austrians would do well to think more carefully about these issues and to understand empirically what a whole variety of institutions and other practices do to forward that social coordination in a world of cognitively biased actors. So Caplan’s point about behavioral economics is well-taken.

In general, I think Caplan’s picture of mainstream economics is far too rosy. In fact, one could argue he is guilty of some “myside bias” of his own. Teaching at George Mason might give one a somewhat slanted view of that mainstream, given the array of eclectic and open-minded types who populate the halls there. Like Pauline Kael’s line about how Nixon could have won when “nobody I know voted for him,” there might be some availability bias in Caplan’s view of the mainstream of the profession. Despite the somewhat more open environment of recent years, the attitude of mainstream economists beyond GMU toward papers that lack mathematical modeling or statistical testing (or an experiment) ranges from uncomprehending to hostile. In the parts of the mainstream that Caplan inhabits, that is certainly less true. But it is also true that Caplan himself would only be viewed as “mainstream” within the halls of GMU. I suspect that in a randomly selected second tier Ph.D. institution, the mainstream is much less open to Austrian ideas than Caplan’s experience at GMU might suggest.

Caplan wonders to what degree the work I pointed to in my lead essay really is Austrian, and he claims, early on in his piece, that Austrian work will continue to be “undervalued” to the extent Austrians keep talking “to each other in their own eccentric dialect.” All of this points to the question of what makes this work, or any work, distinctly “Austrian” and why is marking that difference important? I’m pretty sure my answers will not persuade Caplan, but perhaps they can at least help to understand why some of us find the insights of that tradition valuable enough to make them an explicit focal point of our work.

In his Concise Encyclopedia of Economics entry on “Austrian Economics,” Pete Boettke offers ten propositions that constitute the Austrian understanding of the market. Among them are claims about the importance of limited/subjective knowledge, entrepreneurship, competition, the heterogeneity of capital, spontaneous order, economic calculation, social cooperation, and the non-neutrality of money. The Austrian tradition, for example, understands competition differently from the mainstream, as conversations with colleagues over the years have amply demonstrated. The same is true of entrepreneurship, capital, and knowledge. All of that adds up to a distinctly different view of how markets and their institutions enable humans to coordinate and cooperate in a world of subjective and fragmented knowledge and structural uncertainty. Taking those claims seriously leads to analytical propositions that are distinct from those of the mainstream.[1] How distinct remains an open question, but in Buchanan’s terms, the “allocation” paradigm of the mainstream remains clearly dominant over the “exchange” paradigm implicit in the Austrian tradition. To argue that Austrian insights have been so integrated as to no longer be distinct is an overstatement.

For example, in my own work on inflation, I have argued that the non-neutrality of money and the Austrian conception of the way disequilibrium prices serve to coordinate action under uncertainty lead to a far broader conception of the costs of inflation than is normally seen in the mainstream. This Austrian perspective allows one to see beneath aggregates such as the price level or GDP and understand how inflation disrupts the communicative function of disequilibrium prices and thereby undermines economic calculation and entrepreneurship, which in turn leads to greater resource misallocation and reduces wealth. I have also argued that taking capital heterogeneity seriously can help to understand the problems with stimulus spending in that the specificity of capital and human capital means that not just any old spending will suffice to create a sustainable recovery and long-run growth. Governments lack the knowledge to know just what resources are idle and how they would best fit into a sustainable capital structure and thereby generate economic growth. The complexity of fitting those multi-specific, but not infinitely so, pieces of capital back together requires the guidance of market signals and the distributed intelligence of the marketplace. An Austrian perspective sheds light on these issues in ways that mainstream economists are likely to overlook.

The empirical work I pointed to in the lead essay, including the pieces by Leeson and Coyne that Caplan argues are, essentially, not Austrian, are in fact attempts to provide empirical evidence for other distinctly Austrian claims. Coyne’s work on foreign policy attempts to demonstrate the importance of Austrian insights about the importance of economic calculation, while Leeson’s work, along with that of several other younger Austrians, attempts to show how social cooperation and rules can develop endogenously, even under the worst of assumptions about actors’ motivations. These are distinctly Austrian stories about how order can emerge through unplanned social processes.

Austrian methodological concerns are not simply abstract points in the philosophy of science, but instead flow out of the substantive analytical concepts that Austrians think are foundational to understanding economic coordination. If one believes that markets are processes for coordinating human action that is based on deeply subjective knowledge deployed in a world of structural uncertainty, then some ways of doing economics will be seen as more appropriate than others. In particular, constructing the kinds of analytical narratives that we see in the work of the younger Austrians might be the most appropriate way to provide evidence for the endogeneity of rules or for larger spontaneous ordering processes.

Caplan is right to say that the “Austrianness” of this work is sometimes subtle, and perhaps that’s a reflection of his point that Austrians should avoid “eccentric dialect.” To an extent I agree: there’s no need to use “insider” language when more commonly accepted terms can make the point. But doing so does not necessarily undermine a project’s ability to reflect a distinctly Austrian point, even as it might be something of interest to non-Austrians as well. It is interesting that Caplan does not directly challenge the Austrianness of the work on Hurricane Katrina, which has also been able to both contribute to that tradition and crack into some mainstream journals. I would argue that that work is less subtly Austrian and has given us a much better empirical understanding of recovery than has the work done by mainstream economists.

The question of the uniqueness of the Austrian tradition is one that Austrians must be prepared to answer. I believe that there are unique and valuable insights in that tradition that are missed by mainstream economics. Economists from outside the Austrian tradition have used those insights to enhance their own work over their careers. Here I think of people like James Buchanan, Elinor Ostrom, Deirdre McCloskey, and Vernon Smith. Although none of them identify themselves as Austrian economists, they all would say that insights from Austrian economics have added value to their work. (If I were in a cheeky enough mood, I might have included Bryan Caplan on that list as well.)

I also believe that Austrians can convey those insights, and provide empirical evidence to support them, in ways that avoid Caplan’s very legitimate concern that Austrians not isolate themselves with their “eccentric dialect.” Austrians are, after all, economists, and we should be trying to communicate our ideas with the rest of our profession, and doing so in ways that walk a fine line between making ourselves understood but not losing sight of our unique insights. Caplan may not think that’s possible. I think it is.

Note

[1] Though perhaps not that distinct from what Boettke calls the “mainline.” His distinction between “mainstream” economics and “mainline” economics is a helpful one. The former refers to the current consensus in the discipline, while the latter refers to the long, consistent tradition of economic analysis that explores the way in which rules and institutions coordinate human action to produce the unintended order of the marketplace. That “mainline” stretches back to Adam Smith and includes a variety of 19th century economists (e.g. Jean-Baptiste Say) as well as the Austrians and others such as James Buchanan and Vernon Smith in the 20th. The mainline has not been as dismissive of the Austrians as has the mainstream.

I appreciate Steve’s gracious response. Rather than directly reply, I’d like to take this opportunity to ask Steve some hard questions in the friendliest possible way.

To keep the conversation on track, I implore Steve to bluntly share his own views—not discuss the range of answers that various Austrians, living and dead, might offer. At risk of sounding prickly, I regard any response containing phrases like, “Hayek would say…” as unresponsive.

My starting batch of questions for Steve:

1. What are some important, substantive economic claims that can be known a priori?

2. What are some important, substantive economic claims that can be logically derived from a priori knowledge plus a small number of uncontroversial empirical assumptions (e.g. the disutility of labor or the existence of money)?

3. Economists use multivariate statistics for a reason: to adjudicate between multiple competing hypotheses. Can you name an important, substantive empirical issue where Austrians have grappled with this conundrum? How convincing were the Austrians’ results?

4. What are some important, substantive mainstream empirical conclusions that most Austrians either (a) don’t know, or (b) don’t suitably appreciate? What’s going wrong—and what’s the solution?

In a later entry, I will reply directly to the questions Bryan has raised in his most recent. I will do so because he asked nicely, not because I want to answer them. I don’t want to answer his questions because I have come, in the last few years, to really dislike the whole philosophical debate around the methodology of economics, very much including the internecine debates among Austrians and the debates between Austrians and their (sympathetic) critics. I had to overcome my distaste in order to write the lead essay for this forum, and I did so mostly so that I could eventually gripe about methodology. The reason I dislike these issues so much is that I think that many discussions of methodology get matters backward.

Too many Austrians argue as if we must figure out the right methodology (and method) for economics first, then go out and “do” economics. I think that’s the wrong way to conceive of the issue. One reason it’s so wrong is that, as George Selgin points out in his entry, there are multiple Ludwig von Miseses when it comes to pronouncements about these issues. I very much intentionally presented a view that emphasized one of those Miseses, but George is quite right to point to the others. The result is that these debates get bogged down in “what did Mises really mean?” squabbles. I have been guilty of playing this game myself in the past, which distracts us from actually doing good (Austrian) economics. If nothing else, I hope that my original entry can persuade some critics that the anti-empirical reading George identifies as being more the rule than the exception among self-described Austrians is not the only possible Mises.

Instead of fighting over what Mises really thought the right way to do economics was, let’s go at this another way: method should follow from the pre-analytical vision and the analytical propositions it generates. That is, method comes last, not first. The Austrian tradition from Menger to Mises to Hayek to Kirzner shares a broad pre-analytical vision (to use Schumpeter’s helpful term) about the nature of economies and importance of subjectivism, knowledge, and spontaneous ordering processes. From that vision comes a series of more specific substantive propositions about how this vision manifests itself in economic analysis (see Boettke’s list, which I noted earlier). If we want to make use of those propositions to understand real-world phenomena, it should be those propositions that guide us as to what sorts of empirical observations and evidence are needed to demonstrate the usefulness of Austrian economics in rendering the world intelligible.

More precisely: the world is full of puzzles that we do not understand. Austrians think those analytical propositions are necessary (though not sufficient) for good explanations of those puzzles. What sorts of arguments and evidence are needed to offer persuasive accounts of those puzzles in ways that render them no longer puzzling? Different puzzles will require different propositions, which will require different methods and empirical evidence to render them intelligible.

One way to put this argument is that what makes a piece of economics “Austrian” is not so much the particular method that is employed, or even the philosophy of science that guides the investigation (as if every economist has thought about this), rather it is the substantive propositions about the economy that are being deployed and/or argued for in that piece of work. If, as George rightly argues, there are times we need to do statistical or econometric work to show the magnitude of certain empirical claims in applied economics, then do it. Other kinds of work might be less amenable to such an approach, so in those cases we should use other methods. Austrians need to stop putting the methodological cart before the analytical horse.

This is not to say that we should ignore methodology completely. As Pete Boettke points out, Austrians will have to mount a defense of why we do things the way we do. My point is simply that the defense of our methods should not come before our work, but rather alongside it. If we come up with good explanations for the profession’s puzzles, then our defense of why that sort of explanation is the right kind will be that much more persuasive.

One beneficial side effect of proceeding this way is that we can dispense with the endless debates (and again, I include myself here) over what Mises really meant by “praxeology.” There are multiple readings of Mises out there, and rather than fight over which one is (a priori?) correct, let’s instead find things in the real world that puzzle economists and others, and then make use of Austrian theoretical claims to provide persuasive explanations for those puzzles, using the methods appropriate to both the theory and the puzzle. Isn’t that what economics, regardless of what adjective we put in front of it, should be doing?

I appreciate George Selgin’s reply for a variety of reasons, not the least of which is his sympathy for what I was trying to argue. George raises several points I want to say a little more about, including his discussion of the word “economics” and its relationship to “applied economics” and “economic history.” He is right on target in pointing out the ambiguity in the word “economics.” I did indeed use the word, as is common practice these days, to mean both the “theorems” of economics and the doing of applied economics, not just the former as many self-described Misesians use it. The non-Austrian critics of Austrian economics are presumably using it in the broader way as well, as they refer to Austrian claims about historical phenomena or current policies as being examples of “economics” that is non- or anti-empirical. How else to understand the Josh Barro–type argument that claims that Austrians need not offer any empirical evidence for their economic arguments about the Great Recession because they know “a priori” that government intervention is bad?

I am quite aware of the differences among economic theory, applied economics, and economic history, but all are “economics” in the eyes of actual professional economists. So in defending the claim that Austrian economics has empirical content, I used the word “economics” in this commonly understood fashion.

George also raises the same question Bryan did, though from a different angle, about the “Austrianness” of the empirical work I cited. George’s point is that nearly all of what I cited is work coming out of the George Mason program, which was influenced by the “eclectic” views of the late Don Lavoie. Don’s version of Austrian economics, George argues, might not reflect the broader trends in the school of thought. I want to make several comments about this claim.

First, George has a point. The older set of empirical work mentioned in my first entry was by my generation of Austrians, and we were indeed students of Don’s who largely agreed with his then-eclectic views. It was Don who encouraged us to get our hands dirty in the archives and in the field doing the nitty-gritty empirical work necessary to support the explanations we were providing for the puzzles we were trying to solve. Whatever the validity of the philosophy of science that motivated Don, it was sound advice about how to actually address those puzzles and provided a much needed appreciation for the need to get empirical in those ways.

That said, I don’t think Don’s views are the ones guiding the current applied and empirical work in Austrian economics. He died in 2001, and since then it has been Pete Boettke’s students who are mostly responsible for this work. Pete has articulated his own conception of what he thinks constitutes good economics, and it is what he has termed “analytical narrative.” For me, that’s just another way of saying “how do we tell a good story, complete with evidence, that can explain the puzzles we observe in the real world?” What makes those narratives “Austrian” is that the “conflict” and “plot structure” make use of the analytical propositions of Austrian economics, a point I have noted several times. I should add that good analytical narratives can also borrow propositions from other traditions, such as the Virginia school of public choice and the Bloomington school associated with the late Elinor and Vincent Ostrom. The work of Pete’s students cited in my opening essay makes use of all of them. I think that’s a productively broad set of ideas to inform a good analytical narrative. So rather than Lavoie being the invisible hand behind this work, I would argue that it is the very visible and very hard-smacking fist of Pete Boettke.

And this brings me to my final point about George’s claim. Is this work really the exception rather than the rule in modern Austrian economics? I think the answer depends on what the sample of Austrian economics is. In the last decade or so, the Austrian program at GMU has produced more than 20 Ph.D.s, almost all of whom have academic appointments. The clear majority of those Austrian academics are publishing their work in a variety of peer-reviewed economics journals, both Austrian and not, as well as in edited volumes and their own books. They also write for think tanks and policy organizations as well as in the blogosphere and op-eds. The self-described Austrian work in the profession of economics is strongly dominated by, for lack of a better term, GMU-style Austrian economics, which itself is dominated by the empirically informed analytical narrative work. When well-regarded non-Austrian economists, or academic presses, want the Austrian perspective included in an edited volume or reference work, it is largely to this group that they turn. In that sense, the work I referred to is the rule not the exception.

Of course there are lots of other people out there calling themselves “Austrian economists,” including those who are “consumers” of Austrian economics, not producers. If one casts the term “Austrian economics” more widely, then perhaps the focus shifts and the GMU-style work looks like a minority. There’s no objective answer to the question of which sample is the relevant comparison group. I will just note that Austrian economists from Menger to Mises to Hayek to Kirzner consistently took account of the puzzles that were of interest to the economics profession and aimed their explanations of those puzzles at that audience of their professional peers. Ludwig von Mises was a Distinguished Fellow of the American Economic Association, and F. A. Hayek received the Nobel Prize in Economics. I’ll happily take their success within the economics profession as a model for whom Austrians should be in conversation with and, by implication, what constitutes the relevant comparison group.

I’m delighted by Steve Horwitz’s latest reply, but also confused. Steve initially dismissed doubts about Austrians’ interest in empirics as an unfair stereotype. Now he seems to admit that the stereotype is well-grounded in fact:

Too many Austrians argue as if we must figure out the right methodology (and method) for economics first, then go out and “do” economics. I think that’s the wrong way to conceive of the issue. One reason it’s so wrong is that, as George Selgin points out in his entry, there are multiple Ludwig von Miseses when it comes to pronouncements about these issues. I very much intentionally presented a view that emphasized one of those Miseses, but George is quite right to point to the others. The result is that these debates get bogged down in “what did Mises really mean?” squabbles. I have been guilty of playing this game myself in the past, which distracts us from actually doing good (Austrian) economics. If nothing else, I hope that my original entry can persuade some critics that the anti-empirical reading George identifies as being more the rule than the exception among self-described Austrians is not the only possible Mises.

Perhaps I’m misreading Steve, but this seems like a near-180. Instead of claiming that non-Austrians are woefully ignorant about Austrian economics, he’s now trying to convince non-Austrians that the Austrian economics they typically encounter isn’t the only possible version. I consider this a major advance over Steve’s original position.

At the same time, though, I’m confused. Steve’s original post heavily criticized the Josh Barros of the world for their incomprehension of Austrian economics. Steve’s latest post covertly retracts that criticism. Why didn’t Steve tell Josh, “You’re complaints about Austrians are entirely understandable. You’re right about most of us. But you’ve overlooked a growing number of exceptions”?

The people Steve should be criticizing aren’t mainstream economists who accurately criticize what the typical Austrian says. The people Steve should be criticizing are typical Austrians who make empirically minded Austrians like himself look bad.

Steve’s responses to his commentators, as well as some of the comments made by Bryan and Antony, encourage me to further clarify my opinions on the matter of “Austrian” versus non-Austrian economics.

I’m anxious, first of all, to explain that, by saying that Josh Barro “has a point” when he claims “that Austrian economists reject empirical analysis,” I didn’t at all mean to indicate any general approval of Barro’s condemnation of Austrian economics. On the contrary, despite my managing to find some truth in one of Mr. Barro’s obiter dicta, his essay amounts to nothing more than the crudest of caricatures of Austrian economics, free of the least indication that Barro actually read any of the works he so sweepingly condemns. On the contrary: the essay gives one the distinct impression that Mr. Barro, finding himself in the mood for some conservative-bashing, reached for the nearest hard object and just happened to grab The Road to Serfdom.

What’s more, the grain of truth residing in Barro’s philippic consists of an observation he might also have made, with equal if not greater justice, regarding a very considerable chunk of “mainstream” economics. Like I said, regarded as a claim about “pure theory,” there is, or ought to be, absolutely nothing controversial about the Misesian assertion that economics is “a priori.” Moreover, even the purest of pure Austrian theories, from Menger’s theory of value to Kirzner’s theory of entrepreneurship, have a far better claim to being more empirically grounded, or less factitious, than, say, Debreu’s axioms or Wallace’s overlapping-generations model of money or any number of other celebrated mainstream hobby-horses.

But what I find most obnoxious about Barro’s essay is, ironically, precisely what I find obnoxious about some “hard-core” Austrian writings, namely, the suggestion that there is only one sort of good economics, consisting of work that conforms to this or that set of methodological strictures. Barro’s “Real economics is empirical”; the rest is “philosophy dressed up as economics” is no better than the extreme praxeologist’s “Real economics is a priori”; the rest is “history dressed up as economics.”

As for what constitutes “real” Austrian economics, although I would not go so far as Bryan Caplan does in suggesting that Steve does an about face by admitting that some “real Austrians” are indeed uncompromising “a priorists,” I do think that Steve’s acknowledgement turns his original defense of Austrian economics against Barro’s accusation into what amounts to a defense of the GMU Austrians only. But Steve also observes, with justice, that the GMU Austrians make up a sizable component of the whole; and if Steve’s original criticism of Barro was ill-formulated insofar as it pretended that there were no targets toward which Barro’s claims were well-aimed, it doesn’t follow that Steve was wrong in criticizing “the Josh Barros of the world for their incomprehension of Austrian economics.” After all, if you are going to make sweeping claims, publicly, about the worth of an entire school of economic thought, you ought to feel obliged to know something concerning what a large and highly visible group within that school has been up to during the last decade or so.

And yes, Peter Boettke deserves credit for much of the work going on at GMU. I didn’t mention him by name simply because I regard him as carrying on—with admirable success—the work begun by Don Lavoie, whom I did mention, who was Peter’s own mentor (and Steve’s also).

Finally, I couldn’t help being amused by the defense of mathematical modeling in Antony Davies’s otherwise very sensible plea for treating Austrian and mainstream perspectives on economic method as complementary rather than competing paradigms. Antony imagines that when someone says “Nothing is better than cake,” he may be understood to mean either that cake is better than anything other than cake or that having nothing to eat at all is better than having cake. The equation

U(cake) > U(g) ∀ g,

where g stands for consumption goods of all sorts, is therefore to be preferred, Antony claims, as an unambiguous way of conveying the first meaning.

Is this compelling? Well, no. To make the point, allow me to first replace “Nothing is better than cake” with “Nothing beats cake.” Doing so actually compounds the potential for alternative interpretations that Antony worries about, since “beat” might mean either “best in a competition” or “pummel.” Yet to any ordinary English speaker the phrase surely “beats” the equation, for the simple reason that context and other considerations actually make it quite unambiguous. What’s more, the chosen equation badly misrepresents the true meaning of the phrase, which is really something like, “Isn’t cake great” or “Everyone loves cake,” not “Cake gives me more utility than anything else I might consume”: the math loses the crucial appeal to some supposedly universal or at least not entirely subjective measure of cake’s worth. (I set aside the question whether or not the “unambiguous” equation refers to marginal units, though anyone familiar with the diamond-water paradox will understand that this is no trivial matter.) Well, you get the point. In short, it isn’t merely owing to an unwillingness to be precise that humans generally prefer to communicate with words. Yet I’m afraid that some economists are all too willing to imagine that by trading plain English for even the most fatuous equation, they are making their arguments more “rigorous.” Fritz Machlup—himself a great Austrian economist—liked to say that such economists suffer from rigor mortis.

I also wanted to offer a reply to Antony Davies’s comments. Although I think there are more complementarities between Austrians and parts of the mainstream than some Austrians seem to think, I’m not sure they are as complementary as Davies argues. It’s certainly true that both Austrian and neoclassical economists talk of rationality, and we both value logical argument, but I think those apparent similarities are not very deep. No doubt, expressing economic ideas in the form of an equation can sometimes help clarify our meaning, but as George entertainingly notes in his last contribution, there are times when English is clearer than algebra.

And I think the reasons for this are as George notes: human communication has nuances and subtleties and context that get lost in the formal language of mathematics. Antony rightly reminds us that when we start down the road of a mathematical model we have to keep an eye on whether we’re drifting from reality into unhelpful abstraction. As economists, we have to be willing to judge the trade-off between any gains in precision and clarity that come from expressing our ideas mathematically and the loss of the actual flesh-and-blood human characters that we are talking about.

Like most other economists, Austrians are interested in explaining the puzzles we find in the world in logical ways that rely on some notion of rational behavior by actors. However, in the name of realism we insist that the “problem situation” of those actors is not one in which they have the requisite knowledge to engage in the kinds of maximizing behavior that are at the core of most mathematical models. The engineering solution (what Kirzner called “Robbinsian maximizing” after Lionel Robbins) is at best only part of human action, and it’s the part where we know our means-ends framework and all the information relevant to maximization. The rest, and perhaps the majority, of human action is far more open-ended. Our more typical problem situation is where we don’t even know the ends we seek, nor have we a complete inventory of the possible means we might deploy.

We are in a world of structural uncertainty where we have to discover what it is that the neoclassical model assumes we know. This has been an emphasis of Austrian economics from Menger to Mises to Hayek to Kirzner. The problem with mathematical modeling is that it can too easily cause the theorist to lose sight of the importance of uncertainty and discovery, and thereby come to a weaker understanding of how markets actually work.

Having identified the importance of subjectivism, fragmented knowledge, and structural uncertainty, Austrians are interested in exploring how purposive actors who are looking to improve their well-being as they define it are able to do so by coordinating with other actors similarly situated. Purposiveness and process analysis are the heart of Austrian microeconomics. To focus on maximization and equilibrium, as most mathematical models do and, to a large degree, must, leaves unexplained how real world actors overcome our inability to know the future by making use of social institutions to coordinate with other actors.

That is the real problem situation choosers face and the way they solve it. Like our mainstream colleagues, Austrians see the market as coordinating, in some sense of the word, human choices. However, our depiction of that coordination is one that focuses on coordination as an ongoing process, not as a state of affairs. It is a verb, not a noun. We see coordination as an activity because we start from the alternative problem situation of fragmented knowledge and uncertainty. In that problem situation, coordination will be a matter of discovery, not instantaneous maximization.

Portraying “choice” or “rationality” as maximization rather than purposiveness and assuming that actors know the parameters of their choice situation rather than facing structural uncertainty too easily can lead us to a false understanding of how markets work, and especially the role played by coordinating market institutions. The clarifying aspects of putting economic propositions in mathematical terms have to always be considered in light of the damage that those propositions do to the reality of the social world. I don’t deny that mathematical models can be helpful, but I think I sit farther away from the “complementary” end of the spectrum than Antony does.

Although I have no doubt that Bryan is sincerely interested in my answers to these questions, I also have the sneaking feeling that he, like a really good chess player, is already three steps ahead of me, and that I’m about to walk into some famous gambit of which I was unaware. I am also, as I noted earlier, mostly interested in talking about methodology so that Austrians can stop talking about methodology and get on with the “doing.” As Bryan’s questions also ask about the doing of economics, I will have to get beyond my issues and answer them in good faith.

1. What are some important, substantive economic claims that can be known a priori?

I am not sure whether Bryan will count these as “important, substantive economic claims,” but I think that we can know that humans act purposively, that they attempt to satisfy their most highly ranked ends first (which implies diminishing marginal utility), and the basic claims of downward sloping demand curves and upward sloping supply curves (which are implied by DMU). For me anyway, those are direct implications of, to use Mises’s phrase, “reflection about the essence of action.”

For what it’s worth, I don’t think the answers to this question and the next matter all that much to the argument I’ve tried to make, though I’m guessing Bryan disagrees. As I said from the start, we can’t even do empirical work without theory (and I agree with Antony’s critical comments about theory-less econometric work), so there are some things we will know without empirical observation.

2. What are some important, substantive economic claims that can be logically derived from a priori knowledge plus a small number of uncontroversial empirical assumptions (e.g. the disutility of labor or the existence of money)?

Again, this is not something I’ve thought about extensively during my middle aged rejection of doing methodology, but one obvious example, given my prior answer, is the downward sloping labor demand curve. Another would be the basic quantity theory of money insight that price inflation results from an excess supply of money (though even there, some institutional assumptions might be relevant).

In general, I think that once we get beyond some of these very basic insights, most of economic theory is in the form of “if-then” statements, where the logical connection between the “if” and the “then” is contingent on certain facts of the world and some institutional assumptions. These, of course, require empirical verification. Are these in the category Bryan is fishing for here? I’m not sure. As I said, I’m much less interested in these sorts of questions than I am in the actual substance of economic propositions and their explanatory power.

3. Economists use multivariate statistics for a reason: to adjudicate between multiple competing hypotheses. Can you name an important, substantive empirical issue where Austrians have grappled with this conundrum? How convincing were the Austrians’ results?

I think this is an example of why I’m unwilling to reject the importance of statistical and econometric evidence. As George noted in an earlier contribution, there are cases where such evidence can help us decide among competing hypotheses, or judge the magnitude of a cause-effect relationship. I just don’t think they are the only way to do so.

One example I would point to in response to Bryan’s challenge would be Pete Boettke’s early work on War Communism. Historians agree that Russia’s War Communism period (1918–1920) was an economic disaster. The standard explanation is that the needs of the civil war required centralization of resource allocation and that pulled resources away from the economy and caused the dramatic decline. The decline, they then argue, was not due to a failed attempt by the Bolsheviks to instate full-fledged economic planning. Furthermore, when the war was over, the Bolsheviks moved to the New Economic Policy, which was what Lenin intended to do all along. The competing hypothesis was, as noted, that the failure of War Communism reflected a failure of centralized economic planning and not the war. Both hypotheses are consistent with the economic data indicating an economy in deep trouble.

Boettke offers a whole variety of non-statistical historical evidence that can be used to adjudicate between the two hypotheses, including Lenin’s own words describing what he thought he was doing, the fact that many of the moves toward centralization pre-dated and post-dated the war, and that Lenin said afterward that the move to NEP was a result of the failure of the prior attempt at centralized planning. The empirical evidence Boettke provides I find to be quite persuasive at adjudicating between the two hypotheses, and I think it persuaded others as well.

4. What are some important, substantive mainstream empirical conclusions that most Austrians either (a) don’t know, or (b) don’t suitably appreciate? What’s going wrong—and what’s the solution?

Well this is hard to answer in the first person, as Bryan is asking for my opinion about what other Austrians don’t know or don’t appreciate. As a good Austrian, I don’t know everything that I don’t know, but I can speculate. I think the list of empirical conclusions that Austrians don’t know is probably pretty long and for at least two reasons. First, “substantive mainstream empirical conclusions” is a huge set, and I would guess most economists would only know a fraction of them if one reads that phrase broadly. Many of the younger Austrians are still deeply engaged in the narrower work that comes with the first years of a career and probably don’t read a lot beyond their specialty areas. Just like everyone else. But second, and more to the point, I think that Austrians historically have not engaged with mainstream literature as much as they might have. Again, I think this is improving but is still an issue.

I think that last point answers the last two parts of the question. What needs to get better is more of that serious engagement with the puzzles and results of the mainstream. If Austrians think we have better, more persuasive, explanations we need to look at that empirical work and offer an alternative explanation that’s better, and the evidence to back it up. So I think the answer to Bryan’s question is, best that I can tell from what I know of other Austrians, “a fair amount.”

Many thanks to Steve for answering my questions. I’m honestly not trying to lay any kind of intellectual trap. I just find point blank questions to be one of the best ways to move a discussion forward.

Now for some follow-ups. Steve’s in blockquotes, I’m not.

1. What are some important, substantive economic claims that can be known a priori?

I am not sure whether Bryan will count these as “important, substantive economic claims,” but I think that we can know that humans act purposively, that they attempt to satisfy their most highly ranked ends first (which implies diminishing marginal utility), and the basic claims of downward sloping demand curves and upward sloping supply curves (which are implied by DMU). For me anyway, those are direct implications of, to use Mises’s phrase, “reflection about the essence of action.”

Steve offers three examples. How do they hold up?

a. Purposive action. A solid example, possibly important, but “substantive”? I guess B.F. Skinner might object, but who else?

b. Diminishing marginal utility. Mainstream micro textbooks often have counterintuitive examples with increasing marginal utility. Are you really saying that the premise of these problems is somehow logically impossible? Or are you using a heterodox conception of marginal utility?

c. Downward-sloping demand and upward-sloping supply. What about income effects? Do you really think it’s logically impossible that workers would work more if there were a drastic fall in wages?

2. What are some important, substantive economic claims that can be logically derived from a priori knowledge plus a small number of uncontroversial empirical assumptions (e.g. the disutility of labor or the existence of money)?

Again, this is not something I’ve thought about extensively during my middle aged rejection of doing methodology, but one obvious example, given my prior answer, is the downward sloping labor demand curve. Another would be the basic quantity theory of money insight that price inflation results from an excess supply of money (though even there, some institutional assumptions might be relevant).

I’m really confused. You just named downward-sloping demand as a truth we know a priori. How then can downward-sloping demand for specific goods (labor, money) require additional (though uncontroversial) empirical assumptions?

3. Economists use multivariate statistics for a reason: to adjudicate between multiple competing hypotheses. Can you name an important, substantive empirical issue where Austrians have grappled with this conundrum? How convincing were the Austrians’ results?

One example I would point to in response to Bryan’s challenge would be Pete Boettke’s early work on War Communism…

A good answer.

4. What are some important, substantive mainstream empirical conclusions that most Austrians either (a) don’t know, or (b) don’t suitably appreciate? What’s going wrong—and what’s the solution?

Well this is hard to answer in the first person, as Bryan is asking for my opinion about what other Austrians don’t know or don’t appreciate. As a good Austrian, I don’t know everything that I don’t know, but I can speculate. I think the list of empirical conclusions that Austrians don’t know is probably pretty long and for at least two reasons. First, “substantive mainstream empirical conclusions” is a huge set, and I would guess most economists would only know a fraction of them if one reads that phrase broadly. Many of the younger Austrians are still deeply engaged in the narrower work that comes with the first years of a career and probably don’t read a lot beyond their specialty areas. Just like everyone else. But second, and more to the point, I think that Austrians historically have not engaged with mainstream literature as much as they might have. Again, I think this is improving but is still an issue.

I agree. But then I’m puzzled by the theme of your piece, which seems to be “why the mainstream should take Austrians more seriously,” not “why Austrians should take the mainstream more seriously.”

Perhaps you’re tempted to affirm both. But put yourself in the shoes of a mainstream economist. A heterodox economist shows up and admits that his school is unaware of major chunks of mainstream economics. Still, the heterodox economist is peeved that the mainstream isn’t giving his school’s critique of mainstream economics a fair hearing. Can you see why the mainstream economist might conclude that listening further is a waste of time?

The harsh reality: Heterodox economists can’t stick to “their specialty areas… [j]ust like everyone else” and expect to succeed. Mainstream economists don’t have to master heterodox economics to ignore it; heterodox economists do have to master mainstream economics to challenge it. To repeat my earlier point, Steve really should be pushing Austrians to improve themselves instead of complaining about mainstream apathy. Self-improvement might fail to win the mainstream over, but it’s far more effective than complaining.

In what will likely be my final contribution, I just want to echo Bryan’s final words in his last post. My original contribution was indeed one critical of mainstream economists for not taking Austrians more seriously. That said, I certainly agree with his call for Austrians to be in better touch with the mainstream and to continually challenge themselves to do better work. As I said in a couple of places here this month, Austrians need to know what the puzzles of the mainstream are and try to provide good explanations for them. At the end of the day, whatever complaints we have about the mainstream, the burden is on us as Austrians to do the quality of work that will get recognized. No argument there.