Fallacy Friday #6: Austrian Economics is not Scientific

I have heard progressives who are aware of Austrian economics say this. I have heard people from the Chicago school say this. It’s quite clearly a fallacy. “Austrian Economics falls short because it rejects the scientific method!” This is completely untrue. The Austrian School has the deepest respect for the scientific process, this is why it has the appearance of rejecting the scientific method in the first place. It sounds contradictory so I’ll explain.

Austrian economics is a a school of economics that is descriptive. This means that Austrian economics never prescribes what those in authority aught to do as far as economic policy is concerned.* This is why, when asked about what the government should do about economic problem “X”, they usually say “nothing”. This is because Austrian economists view the world as complex and uncertain. Why is the world complex and uncertain? Because the world and the economy is made up of individuals who all have different value scales that are all subjective

What is a Value Scale?
Commodities and other such economic goods do not really have intrinsic value that can be objectively figured out. All valuations come from the subjective valuations of individuals and economic actors.1 I will use myself as an example. Say I have 2 hours of free time (time is a means in this case since I have a limited supply of it and it cannot be used towards two things at the same time). Say I have the option to paint a picture, take a nap, watch TV, read a book, or go for a walk. Now I have two hours to spend on any one, or all, of these activities. Say I value the activities as follows:

1. Paint a picture
2. Go for a walk
3. Read a book
4. Take a nap
5. Watch TV

Now this would just be my own personal value scale. Someone else may have a completely different scale of preferences they would like to do. If I was to ask a scientist to use the scientific method in order to quantify my value scale, they would probably tell me that it is impossible. This same sort of value scale is how individuals value economic goods as well, with the means being money and other media of exchange, and the activities being goods. Since there is a limited supply of an individuals media of exchange, persons engaged in economic activity must choose  which ends they will satisfy. They then create their own value scales. Mises said the same thing when he said “Value-judgments on this principle would have to be expressed as follows: ‘The satisfaction that I could get from the consumption of a certain quantity of commodities is a thousand times as great as that which I get from the consumption of an apple a day.’ or ‘For this quantity of goods I would give at most a thousand times this apple.’ Is there really anybody on earth who is capable of adumbrating such mental images or pronouncing such judgments? Is there really any sort of economic activity that is actually dependent on the making of such decisions? Obviously not.”2

So you can see that Austrian Economists do not renounce the scientific method simply to fulfill a bias or fit their own perspective. They know the proper place for science and the scientific process. The subjective valuations of economic actors, which are not measurable, is not the appropriate place to use methods dealing in objective matter. This is why Austrian economists rely on logic and deduction rather than the traditional scientific method. Human action, or praxeology, is something science will have to live without measuring and quantifying.

Who Is Really Rejecting Science?
The Austrian economist is not rejecting science because if science was used, it would prove their bias wrong. The Austrian uses deductive reasoning and logic in order to describe economic activity because it is the only way to describe it. As we have seen above, economic valuations and exchanges are a far outside of the realm of scientific theory and measurement. How does one measure the quantity of satisfaction of an individual? You cannot. The only people rejecting science are the ones misusing it. They are the economists that, despite what has been shown above, still try to quantify subjective values. “Praxeology, according to Mises, is not concerned with why individuals pursue the specific purposes they do, but only with what can be deduced from the axiom that they do act purposively.”3

Science never prescribes anything (meaning recommends something as beneficial). Science only describes our environment and you can do with that information as you please. It did not invent the law of gravity, it only describes the law of gravity. It does not prescribe how your body works, it only describes how it does. In the same fashion, Austrian economics is probably closer to this idea of science because it does not prescribe how economics works, it only describes it. If anyone is using economics to prove their biases, it’s the economists using mathematics in order to quantify value. Sure they can create these great artificial constructions, but that is all they are, artificial. They never, like science intends to do, describe reality or how economics and acting individuals operate.The Austrian can link their deductions to reality because “The ‘logical structure of action’ is ‘linked to the logic of our thought,’ because we act on the basis of rational thought.” Austrian economists, as can be seen, have the utmost respect for science. This is in contrast to every other economic school out there that seems to exist simply to dictate public policy. The Austrian economist shows you the facts and leaves you to draw your own conclusions.

*note: Austrian economist generally advocate for free markets simply because subjective value is so incalculable, government policy and regulation becomes pointless. Thus, a free market composed by the aggregate demand of a community due to each individuals value scale is the only recourse. It’s the policy of no policy.

1. Taylor, Thomas C. “The Ludwig Von Mises Institute.” An Introduction to Austrian Economics. Mises Institute, n.d. Web. 07 Aug. 2014. <http://mises.org/austecon/chap4.asp>
2. Von Mises, Ludwig. The Theory of Money and Credit. New York: Skyhorse, 2013. Print.
White, Lawrence H. “The Ludwig Von Mises Institute.” Methodology of the Austrian Economists, Ludwig Von Mises. Mises Institute, n.d. Web. 07 Aug. 2014. <http://mises.org/mofase/ch4.asp>

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