Misunderstandings over Austrian Methodology and Conclusions

Unlearningecon shows exactly how much economics he has unlearned – or, perhaps, never learned. I don’t want to write harsh words about a fellow blogger so I’ll leave it at that. Anyone interested in taking up the fight can join me at:

http://unlearningeconomics.wordpress.com/2012/01/27/some-scattered-thoughts-on-austrian-economics/

  • http://socialdemocracy21stcentury.blogspot.com/ Lord Keynes

    On the Austrian apriorist methodology that is known as praxeology, I would direct readers to my critique here:

    http://socialdemocracy21stcentury.blogspot.com/2010/10/mises-praxeology-critique.html

    • Mattheus von Guttenberg

      I was expecting garbage but I found your post extremely interesting and obviously well researched. The one argument you did not address which I think is important is that Mises was not perfect in his elaboration of praxeology. He made auxillary hypotheses without justifying them. But because Mises made mistakes, this does not discount the entire practice.

      I feel that disutility of labor can be included into praxeology proper, though Mises and Rothbard disagree.

      A final note, I have always been interested in rewriting “… his book as a set of numbered axioms, postulates, and syllogistic inferences using, say, Russell’s Principia.” I believe it can and should be done.

      • Mattheus von Guttenberg

        In other words, your article is an excellent critique on Mises’ use of praxeology, not praxeology proper.

  • Daniel Hewitt

    About the graph that was posted at Unlearningecon, Bob Murphy wrote a Mises daily article some time ago that showed the same series plotted as relatives, instead of absolutes. And the larger slumps were in the sectors that ABCT would predict.

    I tried to post that over there earlier today, but could not get it to work.

    • Jonathan Finegold Catalán

      Do you have a link to the Murphy article? As I have argued before, I am not sure anybody could have predicted where the malinvestment would occur only on the basis that there was malinvestment occurring. To know the structure of the bubble you had to look at a variety of different factors, including the Recourse Rule which dictated what sectors of the economy would receive new credit (the housing sector).

      That is one thing that Unlearningecon got wrong in his criticism — the Austrian theory of intertemporal discoordination is not so much about misallocation as much as it is about investment greater and over than that which is possible with the existing stock of saved goods (capital goods). So, if it’s about scarcity, you can’t really say where malinvestment will occur. The recourse rule and the overconcentration of financial investment in mortgage backed securities gives us an idea of what was happening there, but even then malinvestment can strike anywhere.

  • Daniel Hewitt

    http://mises.org/daily/4682

    I don’t disagree Jonathan.

    Not that this proves ABCT or anything, just that if Unlearningecon is going to accept the data if it supports his case, he should also consider it when it damages his case.

  • http://stickmanscorral.blogspot.com stickman

    I have a comment on ordinal utility (and the standard neoclassical framework) in the thread, which no-one seems to have addressed yet. Since this is directed at Austrians, I would appreciate someone giving it a shot here.

  • http://unlearningeconomics.wordpress.com/ UnlearningEcon

    Daniel, that is interesting. I’m not sure what it has to do with CDOs and so forth but perhaps it suggests a parallel ABCT type recession or something. Maybe Austrians have the diagnosis right but not the prognosis (quite possibly just used those words completely wrong).

  • http://centanium.com/ P.S. Huff

    The trouble with “strict” praxeology is that it ends up yielding a set of conclusions that look like economic laws, but in fact do not predict anything about economic behavior. The praxeological law of demand, for example, is an empty tautology consistent with any causal relationship between the price of a physical good and the quantity of it demanded. To actually say anything about markets, one has to go beyond a priori truths.

    • Jonathan Finegold Catalán

      Is that not true of any economic theory, though? Economic theory doesn’t tell us how humans behave, and predicting anything to do with markets requires predicting human behavior — so, how is this limitation of praxeology not the same for any other methodology that aims to develop theory?

  • Pingback: The Failure of Praxeology, Part 3 | Centanium