Austrians and Empirical Evidence

I was asked today by a friend the following:

[C]an you explain to me the canard about how Austrians don’t believe empirical evidence or statistics factor into the study of economics? Is this true? It is often argued that Austrians work on presupposed axioms which may or may not have empirical evidence for it, and that if any empirical proof be brought which might challenge a conclusion of the Austrian School, then it is dismissed as being a subject of nuance. Statistics and other such methods of measuring men’s actions, it is alleged, are eschewed. This is strange since I see Austrians use graphs and such like to illustrate things like economic booms. Can you explain all of this to me?

And did Rothbard diverge from Mises in anyway on this? Thanks.

Immediately, we should draw a distinction, as Ludwig von Mises did, between economic theory and history; the former being the study of human action as it relates to man in a world of scarce resources and the latter being an actual account of how men, prices, goods, and services had interacted with each other in the past. In other words, by definition, there is a difference between what we claim to achieve via the theory of human action versus historical inquiry. And thus, Mises authored an entire book called “Theory and History.”  Consider Mises’ statement in Human Action:

[Economic] statements and propositions are not derived from expe- rience. They are, like those of logic and mathematics, a priori. They are not subject to verification and falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts. They are a necessary requirement of any intellectual grasp of historical events.

Mises called the general and formal theory of human action praxeology.  Economics was one subset of praxeology.

So then, the correct answer to the opening question above is that Austrians do not believe that economic laws can be discovered via empirical evidence/statistics. For by definition, the purpose of the evidence and statistics is to gather historical information, not to discover economic theory.  Therefore, empirical information relates to “economics” only in a broad and general way; to get a better picture of the past, but never to acquire laws of human action.  A good example of this can be found in Chapter 4 of Murray Rothbard’s “America’s Great Depression.” In preparing to make his case that the 1920s were marked by an inflationary monetary trend, Rothbard makes an observation regarding his method (paragraph breaks added):

Most writers on the 1929 depression make the same grave mistake that plagues economic studies in general—the use of historical statistics to “test” the validity of economic theory. We have tried to indicate that this is a radically defective methodology for economic science, and that theory can only be confirmed or refuted on prior grounds. Empirical fact enters into the theory, but only at the level of basic axioms and without relation to the common historical–statistical “facts” used by present-day economists. […]

Suffice it to say here that statistics 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.

So then, statistics aren’t “eschewed” as such; rather, they are relegated to their proper place in the economic edifice. Just because the Austrian does not think that laws of economics are discovered by complex models, does not mean that statistics in general are never to be used. This would be like complaining that the laws of logic have never been “proven” by statistics. It is in the nature of logical laws that they are not determined by empirical investigation, but rather, are presupposed.

So then, when we are accused of dismissing empirical evidence, we ought to point out that statistics by their very epistemological nature cannot disprove those things which are discovered by a priori thinking. Statistics are chock full of their own assumptions, correlations, temporal conditions, and more, which render them wholly insufficient to provide unbreakable laws of economic theory. Bring me a study that proves price controls don’t work and I will point you to another than proves minimum wages are the secret to a prosperous economy.

Now then, what about a Rothbard and Mises distinction on this point?

As has been indicated before, I always want to emphasize the fact that Rothbard saw economic theory as an a priori study, that is, he defended an economic methodology which stressed the fact that economic theory and economic laws must be attained by an application of the laws of logic and reasoning onto the “human action” axiom (human beings act purposefully; they each employ means to attain valued ends). Stated differently, Rothbard was squarely in the economic tradition of his mentor Ludwig von Mises as to the proper economic methodology.

But we must look back one more step to the axiom itself. How do we “know” that humans act purposefully? How do we discover the action axiom?

Observe the following from the above excerpt of Rothbard’s:

Empirical fact enters into the theory, but only at the level of basic axioms and without relation to the common historical–statistical “facts” used by present-day economists.

Rothbard’s position was that one needed to reflect on, and apply experience to, the real world in order to achieve this axiom of economics. Thus, categorically, Rothbard was technically an “empiricist” in the Thomist sense. But his technical “empiricism” was a long way removed from the more modern empirical “logical-positivism.” As Rothbard himself stated, for all intents and purposes, he was an apriorist on economics (see his Defense of Extreme Apriorism). But in any case, Mises rejected Thomas Aquinas and instead preferred a more “rationalistic” starting point: presuppositions and laws of thinking. Mises saw the action axiom as such that to deny it was to prove it.

That is, in the words of Hans-Hermann Hoppe commenting on Mises’ epistemology,

[axioms] are self-evident because one cannot deny their truth without self-contradiction; that is, in attempting to deny them one would actually implicitly admit their truth.

Mises considered axioms not as empirically derived but as, in the phraseology of Immanuel Kant, synthetic a priori propositions; propositions that were not discovered by experience and that were also not merely true by definition.

I should re-emphasize, so that no one questions this, that despite Rothbard and Mises disagreeing on the foundation of an axiom, they both considered economics an a priori science that rested on a deductive methodology.

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