WorldSys: Austrian Home Study Course, Week 5

The World Systems Project is going to begin with a thorough examination of Austrian economics, starting with Robert P. Murphy’s outstanding “Austrian Economics Home Study Course“. The plan is to blog my answers to the weekly questions, with posts and book reviews tossed in as I go along. 

It should go without saying that the following contains ‘spoilers’, and if you intend on doing the home study course on your own you might not want to read further.

1 What is the difference between a valid argument and an argument with a true conclusion?

A valid argument is one with a conclusion that bears a certain kind of relationship to it’s premises, specifically: if the premises are true then the conclusion must follow. The classic textbook example is:

  • All men are mortal;
  • Socrates is a man;
  • Therefore, Socrates is mortal.

If it is true that all men are mortal and it is true that Socrates is a man then in must necessarily follow that Socrates is mortal.

But there are an infinite number of arguments which have true conclusions but which aren’t valid because they don’t follow from their premises:

  • I am the king of England;
  • The moon is made of cheese;
  • Therefore, 2 + 2 = 4.

We can see that, while the conclusion is incontrovertibly true, it is a total non sequitur with respect to its premises. What on Earth do my heavenly mandate or the constitution of heavenly bodies have to do with truisms of basic arithmetic?

Absolutely nothing.

2 For [Hans-Herman] Hoppe what is the subject matter of economics?

Hoppe defends the view that economics is a pure science dealing with human action. It studies the consequences of the inescapable fact that human beings engage in purposeful, goal-directed behavior.

3 Do other free market schools share the Austrian methodology?

No. The Austrian methodology focuses on a priori knowledge deduced from self-evident axioms. The Chicago School, in contrast, is far more focused on empirical research.

There are plenty of non-Austrians who do utilize Austrian insights, however.

4 What does praxeology mean?

‘Praxis’ means ‘practice’ or ‘action’, and ‘praxeology’ is therefore the study of human action. It is not synonymous with economics, for economics is but one branch of the broader praxeological framework.

5 What is the ultimate starting point of praxeology?

Praxeology begins with what is called ‘the action axiom’, which states that man acts. From this deceptively simple starting point further economic principles such as the law of marginal utility and the law of supply and demand are deduced.

6 If economic theorems are tautologies, do they teach us anything new about the world?

They can. A tautology like “p or not p” does not really get us anywhere, but a tautology like “a person chooses their highest ranked preference first because otherwise they would’ve chosen differently” does get us somewhere. In particular, it allows us to begin understanding the Austrian notion of ordinal, subjective value rankings, which is crucial to an understanding of the whole marginalist philosophy of economics.

7 When Mises first wrote on methodological matters, did he think he was offering a critique of orthodox economics?

No. When Mises began writing it was common to reason about and explain economics with the same reliance on truths deduced from axioms which characterizes Austrianism. Mises believed that he was taking economics as it was practiced and giving it firmer foundations, not building an entirely new structure.

8 Were any of the classical economists praxeologists?

No, praxeology grew out of 19th and 20th century attempts to reform the errors of classical economists. William Harold Hutt wrote many Austrian-themed works while considering himself squarely in the classical tradition, but he is the only exception of which I’m aware.

9 Give an example of a praxeological theorem.

If a transaction between two people is non-voluntary then one person profited at the expense of another.

10 Since economic theorems are always valid, does that mean their conclusions apply to every situation?

No. An economic theorem’s validity derives from the fact that it must follow from its premises, but if the premises don’t hold then the conclusion may or may not follow. The world is complicated and for any given situation there are innumerable mitigating factors which could make economic analysis less straightforward.

A well-known economic truism is that an increase in the supply of a good will decrease demand for that good. So if a dress shop doubles their supply of a certain dress and demand goes up have we refuted the laws of supply and demand? No: perhaps Kim Kardashian was seen wearing the dress and now her fans are clamoring to get their hands on one.

11 To be scientific, shouldn’t we test economic laws?

I have a confession to make: I’m a huge fan of empiricism. This means the Austrians are unlikely to invite me to their philosophy parties.

But it is crucially important that we never lose sight of the fact that what we’re trying to understand is reality, and that our deductive principles and our models might have to be changed on the basis of new discoveries.

But having studied Austrianism I’ve become more aware of the fact that there are certain kinds of claims for which observational evidence is not required or even relevant.

Consider the claim that a ball cannot be blue all over and green all over at the same time. I suppose one could try to test this with a ball and some cans of spray paint; but if we saw someone undertaking experiments of this sort, or founding an Institute for Research Into Non-Contradiction, we’d be feel that they simply didn’t understand what ‘all over’ or ‘at the same time’ means.

Likewise, in high school we all learned that on a plane the interior angles of a triangle sum up to 180°. Empirical confirmation of this fact isn’t necessary if one understands the proof. Moreover, if someone did draw a triangle whose interior angles summed to 179° we would all assume they’d made a small error in their measurement, not that all of geometry was now in question.

Or how about this one: the Austrians claim that the Great Depression was the result of government policies and that a hands-off approach would’ve made the recovery much, much quicker. Keynesians, on the other hand, think that not only is the market to blame for the downturn but that without extensive interventions the recovery would’ve taken much, much longer.

As we are dealing with a matter of history there isn’t any way to turn back the clock, try something different, and then compare the results. Instead we must evaluate these claims on the basis of sound theory, for there is no other way.

12 What does synthetic a priori mean?

It means a statement the veracity of which cannot be established by formal logic and for which experimental observation is also not required. A true synthetic a priori statement follows from axioms which cannot be denied without implicitly relying on them — e.g. one cannot deny that existence exists without confirming existence. With such axioms in hand we can derive synthetic a priori truths by reflecting on how things must necessarily be. Kant, who developed this framework, gave geometry as an example of a body of true synthetic a priori statements. Geometry begins with axioms like the definition of a line and derives further statements which could be tested (like: ‘the interior angles of a right triangle sum to 180°’) but which usually aren’t tested.

13 Does praxeology assume that all people are perfect calculators?

No, it assumes that they engage in purposeful behavior and have a hierarchy of wants.

14 Does praxeology assume all people are basically selfish?

No.

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