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A Brief Defense of: Praxeological Economics & the Austrian School
By tankychopper ·
When I started learning economics I decided to read from various examples of the many schools of thought. Pretty soon I found I enjoyed the writings of the Chicago School, the likes of Milton Friedman, and Thomas Sowell, the most. I had heard of the Austrian School but dismissed it because the introduction I had heard from others was “They ignore all empirical evidence” to which I thought “Surely no serious school of thought could dismiss evidence of their theories being wrong. They must be delusional, a respectable engineer must test their hypothesis, therefore Austrians must not be respectable economists” I did not realise the false and very foolish assumption I had jumped to.
Why does one ‘need’ to test an economic theory empirically? The answer I first gave to this question in my “A Brief Argument Against: Minimum Wage Laws” was:
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Theory fails to prove correct when it is incomplete. To make sure a theory is complete and accurate empirical evidence can be examined.
If our theory says “an object in motion stays in motion unless acted upon by a force. Thus, by setting yourself in motion by jumping, you will continue to fly up until you bump your head on something.”
We can then verify if it's complete by empirical testing. If we jump and discover we fall back down without hitting our head on something, we must then correct our incomplete theory. In this case we must add that gravity exists.
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Ironically looking back I was correct to an extent: “Theory fails to prove correct when it is incomplete” Is not only compatible with the Austrian School, but actually is taken much further.
This is because Austrians recognise that laws of natural sciences have different epistemic origins from laws of economics. For example: Newton's Law of Universal Gravitation is proven a posteriori, whereas the Law of Marginal Utility is proven a priori.
When engineers or physicists talk about ‘hypotheses’, or mainstream economists talk about ‘theories’ they use it to mean “any potential model to explain phenomena”. Thus a posteriori knowledge is often necessary to deny or confirm.
What Austrians mean by economic theory however, is purely a priori knowledge. By this standard, mainstream models like “Children prefer Burger King over McDonald’s” are not valid economic theory, because they require empirical confirmation.
Historically verified outcomes, however, do not determine whether a theoretical model will always be the case. They simply determine if it is so currently.
This isn’t to say we mustn't look to history for examples, on the contrary, Praxeologists have been the most successful at explaining why economic events occurred as they did, as our theories will always be true, regardless of the time period being observed.
Austrians correctly recognise that economics relies on the actions of individuals. Thus the study of economics is really the study of human action, Praxeology.
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Examples of a priori economic laws:
- A larger quantity of a good is preferred over a smaller quantity
- The marginal utility of a good decreases as the supply of that good increases
- The same good is preferred to be obtained sooner rather than later
- Prices fixed below market clearing prices lead to shortages
- What is consumed now cannot be consumed again later
- Property (scarce resources) and property titles (legal claims to those resources) are distinct entities. Creating additional titles without producing more real goods does not increase total wealth. It only redistributes purchasing power from later recipients to earlier ones
- Every action implies the rejection of the highest-valued alternative means
- If goods were not scarce, there would be no need to choose and therefore no action
- Every voluntary exchange benefits both exchange partners otherwise it would not occur
- Every coercive intervention involves a loser and a winner, one who gains in utility, and another one who loses in utility
- Without private property in production factors there can be no prices and without prices cost accounting is impossible
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These laws are grounded in human action itself. Any attempt to refute them must either rely on empirical counterexamples (which cannot disprove a priori truths) or deny the logical structure of purposeful action. This leads to a performative contradiction. For just as one cannot meaningfully claim "I am not speaking" as one speaks, one cannot meaningfully claim "man does not act" while acting.