—Paul Samuelson on the Austrians[1]
Austrian economics (or the Austrian school of economics) is a school of economic thought that eschews mathematical modeling and empirical testing in favor of a narrative approach termed “praxeology.”[2][3]
As the claims of Austrian economists are difficult to verify through empirical testing (and the same economists openly admit to it), it is generally considered to be a heterodox approach[4] or outright pseudoscience.[5] Austrian arguments as to why statistical methods cannot adequately describe human behavior can seem intuitively compelling, but they fail to provide the mathematical proof demonstrating why normally unbiased estimates suddenly become biased simply because they are dealing with people who make decisions. Perhaps one reason they are so uncomfortable with empiricism is that Austrian economists are more interested in defending the political ideology of libertarianism than they are in advancing economic understanding,[6] and rigorous testing can sometimes undermine deeply held political beliefs.
Can we take anything positive from it? Well, to start, its use can be found* in no economy in the world*… except Somalia.[7]
Praxeology
Murray Rothbard’s Praxeology: The Methodology of Austrian Economics describes praxeology as an application of deductive reasoning, applied to a set of “unquestionable” axioms. Of course, any implications derived from these axioms are only as good as the analysis that derived them, and the axiom that they were derived from. This is where praxeology gets into trouble, as they reject less mushy formal analysis in favor of more weasely verbal analysis. Let’s look at the axiom that Rothbard refers to as the foundation of praxeological deduction as an example, the “fundamental axiom of action.” Almost immediately, the axiom wades into trouble. It states that:
The first part of that assertion is simple enough to grasp, but what does it mean to act? One possible definition of act says it is to “perform an action.” This seems to be as far as most Austrian school thinker take this. However, as an air conditioner, vacuum cleaner and TV all perform actions, it would seem this axiom places human beings in the rather large set of things that act. It would be pretty embarrassing then, to derive any economic conclusions from the fact that people are part of the set of things that act, as the conclusions deriving from being a member of the set of things that act would apply to other members of that set as well. Fortunately, Rothbard is kind enough to clarify his definition:
Note that one under-defined concept has now been replaced with two; conscious action and chosen goals. Let us ignore the validity of this assertion, and try to figure out just what chosen goals are. The word choice would seem to imply some form of conscious action was taken in forming these goals, so is the real statement of this axiom “human beings take conscious action towards a consciously acted upon set of goals?” Perhaps Rothbard meant to differentiate between “choosing” and “acting,” but that is never clearly expressed. In either case, it would seem that the definition of goal needs some work to be truly useful. Sound logic relies on clarity of definition, as many arguments are sensitive to subtle changes in meaning, and vague statements hide contradictions.
This approach of verbal deduction also leads to a rather noticeable (ab)use of false analogies and intuition pumps.
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Even they admit they just pulled this stuff out of their asses
The Austrians seem to follow the maxim “If you can’t dazzle them with brilliance, baffle them with bullshit.” If you couldn’t wade through all their econo-speak and arbitrary redefinitions of commonly used terms, however, they literally do the work for you and come straight out and say they just made everything up. Ludwig von Mises himself wrote of his theory:
F.A. Hayek wrote that any theories in the social sciences can “never be verified or falsified by reference to facts.”[22][23]
In other words, it’s economic theology. An entire (albeit minor) school of economics has published book after book and paper upon paper just to say all problems can be boiled down to “gubmint did it” and all solutions can be described as “free market always wins.” Despite this, their influence (on the internets, at least) seems to be growing, at least since 2008 and the proliferation of “Peter Schiff was right!!11!!” videos.[24] Hayek’s book The Road to Serfdom also got the Glenn Beck bump when it was mentioned on his show.[25]