Economic Method, Epistemology, Philosophy, Political Philosophy

A Critique of Misesian Economic Methodology: Part I – Introduction

Introductionludwig-von-mises

The Austrian School of Economics (ASE) is growing more influential among those interested in economics and political philosophy.[1] It offers an alternative philosophical and methodological way of thinking about economics and economic problems.[2] The distinctive features of the ASE methodology are radical subjectivism, methodological dualism, and deductive apriorism. These distinctives are associated with Ludwig von Mises, the fountainhead of the contemporary Austrian tradition. The Misesian system was constructed in order to combat the growing influence of positivism in economics during the twentieth century. Mises was concerned positivism would strip economics of the human element of purposive action.[3] In order to contest positivist influence in economics, Mises offers a foundational theory of human action called praxeology. Moreover, the praxeological foundation utilizes core elements of the Kantian critical system of philosophy, and leans strongly in a neo-Kantian direction.

Although Misesian praxeology is primarily Kantian, there are features in his system that conflict with the philosophical tenets of this foundation. Praxeology, broadly speaking, is a general foundation for the social sciences, while catallactics focuses on human action within the jurisdiction of economics.[4] Not only can the conflict of realism and anti-realism be detected in the praxeological foundation of the Misesian system; it is also discovered when separating the general praxeological foundation from the narrower field of economics. Indeed, this tension can be found throughout the contemporary Austrian corpus. For example, Jorg Guido Hulsmann writes in the introduction of, Epistemological Problems of Economics, that Mises only has rhetorical affinities[5] related to Kantian philosophy, while he is actually working in the tradition of Aristotelian realism.[6] Murray Rothbard, the most ardent advocate of the Misesian praxeological tradition, argues contrary to Hulsmann. Rothbard states Mises was an adherent of Kantian epistemology,[7] rather than only possessing rhetorical affinities. Moreover, Rothbard explicitly rejects the Kantian aspects of the Misesian praxeological foundation for an Aristotelian version.[8] In an article written for the Mises Institute, Faustino Ballve emphatically associates Mises with Kantian philosophy.[9] Finally, Peter Boettke’s book, Living Economics, contains a chapter titled “Was Mises Right?” which thoroughly highlights, although this was not Boettke’s intention, the tension between realism and anti-realism in Misesian thought.

The evidence clearly indicates that there is deep metaphysical discord at the heart of the Misesian system, and the metaphysical discord also suggests epistemological incoherence. Concerning the metaphysical dissonance, one cannot be a realist and an anti-realist at the same time. For the realist, the truths of the external world are mind independent. For the anti-realist, the truths of the world are not mind independent. Misesian praxeology is the foundation from which he proceeds to practice economics, and this foundation is unambiguously anti-realist. Moreover, the manner in which Mises practices economics is in the tradition of realism. It is not until this metaphysical confusion is solved that a meaningful epistemology might be suggested as a corollary of prior metaphysical commitments.

In addition to this already problematic metaphysical position, what Mises suggests as a solution for positivist influence in the area of economic methodology only reemphasizes the mechanistic framework from which the positivists were/are operating. The development of positivism has its roots in the Kantian foundation Mises suggests as a methodological safeguard for economic theory. This Misesian maneuver ultimately results in only a nuanced difference in key areas of economic thought, while vast overlap between competing schools remains firmly intact. Consider this list of overlap between the Austrian and Chicago Schools of Economics[10]:

  • Both champion the sanctity of private property as the basis of exchange, justice, and progress in society.
  • Both defend laissez-faire capitalism and believe firmly in Adam Smith’s invisible hand doctrine, that self-motivated actions of private individuals maximize happiness and society’s well-being, and that liberty and order are ultimately harmonious.
  • Both are critics of Marx and Marxist doctrines of alienation, exploitation, and other anti-capitalist notions.
  • Both support free trade, a liberalized immigration policy, and globalization.
  • Both generally favor open borders for capital and consumer goods, labor, and money.
  • Both oppose controls on exchange, prices, rents, and wages, including minimum wage legislation.
  • Both believe in limiting government to defense of the nation, individual property, and selective public works (although a few in both camps are anarchists, such as Murray Rothbard and David Friedman).
  • Both favor privatization, denationalization, and deregulation.
  • Both oppose corporate welfarism and special privileges (known as rent seeking or privilege seeking).
  • Both reject socialistic central planning and totalitarianism.
  • Both believe that poverty is debilitating but that natural inequality is inevitable, and they defend the right of all individuals, rich or poor, to keep, use and exchange property (assuming it was justly acquired). They do not join the chorus of pundits bashing the rich, although they frequently condemn corporate welfarism.
  • Both refute the Keynesian and Marxist interventionists who believe that market capitalism is inherently unstable and requires big government to stabilize the economy.
  • Both are generally opposed to deficit spending, progressive taxation, and the welfare state, and favor free-market alternatives to Social Security and Medicare.
  • Both favor market and property-rights solutions to pollution and other environmental problems, and in general consider the environmentalist crisis as overblown.

As the above list indicates, the agreement between these supposed economic rivals is significant. The nuanced differences can be found in areas of methodology, the role of the government in the economy, what constitutes sound money, and macroeconomic theory.[11]

Given all of this, it is my contention that contemporary Austrian School practitioners must either abandon the anti-realist Misesian praxeological foundation they champion or cease advocating for the practice of economics from a realist perspective. This dilemma provides great difficulties for the ASE because it is the Misesian praxeological foundation that allegedly makes them unique among their peers; this foundation is also the reason why their peers reject their methodology.[12] Although difficult, this conflict can be resolved by abandoning the anti-realist Misesian praxeological project whereby a new methodological understanding can be constructed in the tradition classical metaphysical realism. Following this clarification, a more proper epistemology can be offered for the field of economics, one that necessarily includes the moral realm of the political economy.

 

– Lucas G. Westman


[1] The growing influence is directly connected to the republican presidential primary campaigns of Ron Paul, and the continued efforts to spread Austrian economic ideas at the Mises Institute.

[2] Peter Boettke emphasizes this in his book Living Economics: Yesterday, Today, and Tomorrow. On Pg. 38 and 39 he says, “What you emphasize in the phrase ‘Austrian economics’ matters for how and whom you interact with. If you emphasize Austrian economics then you are led to stress philosophical foundations and methodological positions. If you emphasize Austrian economics, then you are led to stress substantive propositions in economic reasoning and applications. It is easier to communicate with your peers in economics if you do economics, and it is easier to talk with other social scientists and philosophers if you work on philosophy and methodology… Bottom line – whichever side you come down on (Austrian or economics) strive to work with the best minds in the relevant disciplines.”

[3] The majority of economists agree with the basic assumption that the rational human agent is the object of study in the science of economics. Many definitions of economics have been given to us throughout the history of this field. In Principles of Economics, Alfred Marshall says, “Economics is then the science which investigates man’s action in the ordinary business of life.”(Principles of Economics, Marshall, Pg. 115) Thomas Sowell provides this definition “Economics is the study of the use of scarce resources which have alternative uses.”(Basic Economics, Pg. 3) To elaborate on these definitions we can say that economics is the social science dealing with the allocation of scarce resources that have alternative uses within a framework of constrained maximization. Keeping these insights in mind, the proper definition of economics defined in modernist terms is thus – Economics is the social science that studies rational actors or agents seeking to maximize efficient and optimal allocation of scarce resources that have alternative uses within a framework of constrained maximization. This definition, however, will be challenged in a later essay looking to reintroduce moral theory into economic methods.

[4] Mises highlights this distinction clearly, “All that can be contended is this: Economics is mainly concerned with the analysis of the determination of money prices of goods and services exchanged on the market. In order to accomplish this task it must start from a comprehensive theory of human action. Moreover, it must study not only the market phenomena, but no less the hypothetical conduct of an isolated man and of a socialist community. Finally, it must not restrict its investigations to those modes of action which in mundane speech are called “economic” actions, but must deal also with actions which are in a loose manner of speech are called ‘uneconomic.’

“The scope of praxeology, the general theory of human action, can be precisely defined and circumscribed. The specifically economic problems, the problems of economic action in the narrower sense, can only by and large be disengaged from the comprehensive body of praxeological theory. Accidental facts of the history of science and conventions play a role in all attempts to provide a definition of the scope of “genuine” economics.

“Not logical or epistemological rigor, but considerations of expediency and traditional convention make us declare that the field of catallactics or of economic in the narrower sense is the analysis of the market phenomena. This is tantamount to the statement: Catallactics is the analysis of those actions, which are conducted on the basis of monetary calculation. Market exchange and monetary calculation are inseparably linked together. A market in which there is a direct exchange only is merely an imaginary construction. On the other hand, money and monetary calculation are conditioned by the existence of the market.” (Human Action, Scholars Edition, Mises, Pg. 235)

[5] Epistemological Problems of Economics, Mises, Pg. liii

[6] Epistemological Problems of Economics, Mises, Pg. li

[7] Economic Controversies, Rothbard, Pg. 65

[8] Economic Controversies, Rothbard, Pg. 65

[9] http://mises.org/daily/5708/On-Methodology-in-Economics

[10] Vienna & Chicago: Friends or Foes?, Skousen, Pg. 3, 4

[11] Ibid, Pg. 6, 7

[12] This is not the only reason mainstream economists reject the Misesian paradigm, but these issues will be dealt with later.

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2 thoughts on “A Critique of Misesian Economic Methodology: Part I – Introduction

  1. Pingback: A Critique of Misesian Economic Methodology: Part II – Historical Considerations | The Socratic Catholic

  2. Pingback: Socratic Catholic Archive IN PROGRESS | Defense for the Hope

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