Austrian Economics

Economics
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Brian Smith

His name is Brian Simpson! :slight_smile:

Richard Salsman is an economist in private practice, engaged in forecasting for various clients. He’s written a couple of small books, Breaking the Banks on the history of free banking and Gold and Freedom on the gold standard. Both of these are published by the American Enterprise Institute.

I forgot to mention Richard Salsman as well. Both of these works are great!

The Austrians are justly skeptical about drawing conclusions about human behavior or society from data collected here and there. As somebody said on another forum, “It is not so much that Austrians say they need no empirical testing, as they say that it will be impossible to design an appropriate experiment to test the theory.”

This is probably true but I do not find it comforting. Why do they believe that it is impossible to test economic theories? This suggests that they could have an improper view on epistemology.

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His name is Brian Simpson! :slight_smile:

Argh. Of course, you are right. That’s what I get for writing from memory while simultaneously trying to pay attention to a meeting at work.

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Richard Salsman is an economist in private practice, engaged in forecasting for various clients. … Salsman tries to apply a more inductive methodology in his economics, but is nowhere near as systematic as Reisman or Smith.

I can’t speak about his other writing, but I don’t think Salsman understands Austrian economics at all.

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I don’t think I’m understanding. I thought all science, economics included, was supposed to be guided by the scientific method and using empirical data only. I didn’t think philosophy could overrule the conclusions reached via the scientific method. I have never heard that in science there is any “philosophical premise”, as you say, other than the scientific method.

I just want to be clear on distinguishing the roles of science and philosophy. The scientific method is indeed an application of philosophy. Another is the reason for practicing science. For example - is it proper to study nuclear weapons, genetic genetic engineering, cloning, or astrophysics? Why should we practice science at all? What should I study? Is science different from faith? What are the limitations of science?

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I had thought that the Austrian school was the basis for concluding that the philosophy of Objectivism could have real world application.

My motivation for studying Objectivism is to learn (1) what is the basic nature of the universe (2) how can I know it (3) what is my nature (4) how should I live, (5) how should I treat others, and finally (6) what is the proper form of social organization. Politics is one of the last branches of philosophy to be validated when studying Objectivism.

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I can’t speak about his other writing, but I don’t think Salsman understands Austrian economics at all.

Why don’t you think he understands Austrian economics? I would dismiss any criticism from Mises.org, an anarchist website, out of hand.

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Why don’t you think he understands Austrian economics? I would dismiss any criticism from Mises.org, an anarchist website, out of hand.

I would tend to advocate the opposite. Anything, no idea, no matter how opposed you are to it, should simply be ignored. Objective, critical analysis is always preferable to ad homenim attacks, no matter the target.

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I would tend to advocate the opposite. Anything, no idea, no matter how opposed you are to it, should simply be ignored. Objective, critical analysis is always preferable to ad homenim attacks, no matter the target.

The problem lies in someone interested in Austrian economics learning from people with nothing but a rationalistic understanding of it. By the same token, someone shouldn’t learn about the Objectivist view of the relationship between facts and value from David Kelley.

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I am committed to the idea of living in a land where human rights are sacred, but the empiricist in me would like to be able to demonstrate with data, derived by the scientific method, that this is the best way to organize human societies. From the discussion here it seems Objectivists differ on whether Austrian economics is congruent with Objectivism, though.

Data cannot tell you what is best unless you define an objective. For instance, if empirical data suggested that you may be able to maximize GDP with slavery, that does not mean that it is the best outcome. (Respectfully) You also need to check a premises that seems to be implied by you statement: who organizes human society/should human society be organized? (maybe I am just reading into it too much)

Be careful not to confuse positive economic theory with normative economic philosophy, although they seem to inevitably cross paths. Positive economics, like any of the other sciences, should be judged by how well a theory describes some system within the universe (i.e.: the Fisher Equation, E. A. Phillips Curve, Efficient Markets Hypothesis, etc…). Normative economic ideas are an entirely different ball game; they are about the “should” and “aught,” whereas the positive ideas are about the “is” and “will.”

It is tempting to dismiss the valid positive economic thoughts of those with whom you have normative disagreements, but your relationship with reality will suffer. For instance, the fact that Paul Krugman might not respect my property rights does not reveal anything about the validity of his theories on the Japanese Credit Crunch of the 1990’s.

Similarly, the Austrian School’s use of Praxeology to describe/predict the economic consequences of human actions, macro & micro-level, does not, in and of its self, speak to the appropriateness or moral consequences of the actions of those humans.

Aside:

GreedyCapitalist, you typically have very insightful posts, but your dismissal of Econometrics was petty. Also, why do you think that Hayek was a “welfare statist?”

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GreedyCapitalist, you typically have very insightful posts, but your dismissal of Econometrics was petty.

I don’t dismiss it entirely - it has many legitimate applications. I object to the use of statistical models as a substitute for causal explanations. For example, econometrics is often used to decide whether the minimum wage causes unemployment. An honest economist would refute attempts to use statistics to evade the nature of all price controls.

why do you think that Hayek was a “welfare statist?”

Hayek was a great economist, but he was not an advocate of individual rights. He positioned himself in relation to the mainstream rather than reality. This is why he was embraced by the right and won the Nobel prise whereas Mises did not. His arguments were always presented in terms of utilitarian cost-benefit analysis rather than in terms of rights.

I can’t remember many of his positions now, but I remember that he was a central banker for most of his life. In The Constitution of Liberty he expresses support for taxation, some welfare, public housing, public education, and I think the draft.

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I object to the use of statistical models as a substitute for causal explanations…econometrics is often used to decide whether the minimum wage causes unemployment. An honest economist would refute attempts to use statistics to evade the nature of all price controls.

In The Constitution of Liberty he expresses support for taxation, some welfare, public housing, public education, and I think the draft.

Ah, but econometric models are not meant (or at least should not be) to produce explanations, only theory can do that. The models only measure the strength of the “causal explanations,” within certain parameters. Your objection is valid.

Whether or not the minimum wage causes unemployment is seperate from the morality of price controls. Knowledge of the MW/u relationship is valuable to me apart from my dislike of MW. Along those same lines, there is a lot of research going on right now regarding the revenue effect of the “Bush tax cuts” and where the US might be on the Laffer Curve. A lot of students who are new to economics see Laffer’s parabola and have a Calculus 101 spasm, automatically trying to optimize revenue. Of course, Mr. Laffer’s discovery of the relationship only proves that it exists, and current research may prove/suggest where the US is on the curve, but the science behind it does not tell us where the US should be.

RE Hayek: Agreed…he certainly was not as free market as your typical objectivist, but to paint/remember him as a “welfare statist” would be analogus to remembering Jefferson for slavery rather than liberty. Keep in mind his context, too - he wrote The Road to Serfdom while Stalin and Roosevelt were running the show.

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Be careful not to confuse positive economic theory with normative economic philosophy, although they seem to inevitably cross paths.

Since every “is” implies an “ought,” they don’t just seem to inevitably “cross paths.”

All economic theories are based on some philosophical premises: metaphysical and epistemological ones as well as ethical and political ones. The extent to which an economic theory should be accepted is the extent to which the relevant premises it is based on are correct. If a theory only describes the effects on certain economic variables of an action, without evaluating them (what you call a “positive theory”), one might be tempted to think that only the author’s metaphysical and epistemological premises are relevant and one can safely ignore the ethical ones–but I would urge caution with that, as even the author’s definitions of the actions and variables may be mistaken, and those definitions often depend on evaluative premises.

For example, if an author claims to have a theorem on how something will affect economic output, you need to consider whether he has a correct definition of output. Output is the amount of values created by men in the economy, so if the author has an incorrect view of what is a value–which is very much an ethical concept–then his idea of output will be inherently tainted. I am not saying that the whole theory should simply be thrown out in such a case, but one should not accept it as certain truth, but see if it can be applied in a framework of correct definitions.