Chacha's Madness... And Mises' Method

Chacha Manmohan S Gandhi deigned to meet the press the other day. Mint has a long editorial on that, well worth reading, but what I would like to focus on are the "scientific" basis of two confident forecasts Chacha made. Mint says:

...he chose to disclose some gravity-defying numbers: inflation to be brought down to 5-6% by December and 8.5% growth rate this fiscal. These numbers ignore a wider reality of a world economy in turmoil and assume that India can quietly pass this storm.

How does Chacha forecast inflation and growth rates? His method is to measure economic variables, plot them on a chart, apply "econometrics" and voila! He has his forecast.

Ludwig von Mises called this "scientism." Chacha mimics the method of Physics and calls it "science." Mises said that this method cannot be applied to Economics at all, especially since there are no "constants" (there are only variables). He outlined an alternative epistemology for Economics, based on logical deductions from a priori axioms. What does this mean?

In Physics, all hypotheses have to be "empirically tested." But in Economics, this is quite unnecessary, as we begin our journey with self-evident truths that need no evidence from real world facts to prove them. Rather, these truths are embedded in our own minds, and are founded on our inherent logic. Just as in Arithmetic we do not need empirical testing to prove that 2+2=4, or in Geometry we do not need to go about measuring the sides of triangles to prove Pythagoras' theorem, so too in Economics. Logic is sufficient. Empirical verification is unnecessary. Let us take a small example, the Law of Marginal Utility, which says:

Whenever the supply of a good increases by one additional unit, provided each unit is regarded as of equal serviceability by a person, the value attached to this unit must decrease. For this additional unit can only be employed as a means for the attainment of a goal that is considered less valuable than the least valued goal satisfied by a unit of such good if the supply were one unit shorter.

This is a very important law in Economics. But to validate it we only need to apply our own logic to its statements and conclusions. We certainly don't need to go about "measuring utility."

Mises' writings on method are numerous - and mainstream economists hate them, for it challenges their competence at the most basic philosophical level, by asking them the inconvenient question of epistemology: How do you obtain "knowledge"? I once found an eminent economist advising his students to "read Human Action, but skip the first 90 pages." These first 90 pages, of course, concern method. My advice to all of you is to read Human Action beginnning at the beginning, paying special attention to the discourse on method.

Today, however, I have a treat for all of you: a short lecture by Hans-Hermann Hoppe on the Austrian Method in Economic Science. You can find the PDF here. The file contains two lectures delivered on the subject in 1987. I suggest you read just the first lecture to begin with - and read it many times over to grasp the underlying issues thoroughly. It is only 40 pages, and highly readable too. You will be forever enlightened.

There is method - and there is madness. Empiricism in Economics is madness masquerading as science. It is the chosen method of Central Planning, Keynesianism and Welfarism - and all three are pillars of modern Totalitarianism. Our Total Chacha State practices all three.

The opposition in Parliament call Chacha and his CONgress party "pseudo-secular." I would prefer to call them "pseudo-economists."

Don't believe in inflation and growth rate forecasts - they are nonsense.