Comments to a recent post of mine expressed confusion about the a priori method of the Austrian School of Economics. So I have decided to devote this post to explaining what it is all about.
The central tenet of the Austrian School is that Economics is a "science of human action." This action is purposeful and goal-directed. The individual who acts, weighs means and ends - that is, his action is all about preferring one thing and setting another aside; about giving up what he values less for what he values more. And all values are necessarily "subjective" - in the sense that only the acting individual's mind gives value to anything. Value is not "intrinsic" in goods; rather, it is the mind of the consumer that gives value to anything. Austrian Economics is all about this individual's mind. Let us now proceed a little deeper.
A science of human action based on the acting individual's mind attempts to first uncover the "laws of thought" that guide human action. These laws of thought are general and universal - that is, they operate in all human minds. Austrian economists discover these laws of thought through the method of "introspection" - they first look into their own minds. Then, assuming that all human minds are possessed of the same "logical structure," they predict how other human beings will act under certain conditions. These predictions are "qualitative" and not "quantitative" - there is no mathematics or statistics involved - but since all human action is guided by the same laws of thought, they apply with "apodictic certainty." This is the basis of the Austrian School's claim to Science. This is a "logical science." And the methods used are NOT those of the natural sciences like Physics. Let us proceed with a small example.
The illustration accompanying this post shows two intersecting curves of Demand and Supply. This is the standard method by which these basic ideas are taught in classrooms worldwide. This looks very "scientific." Further, these curves can easily be expressed mathematically - which makes everything look even more scientific. These curves are a product of two highly influential British economists, Alfred Marshall and Francis Edgeworth, both of whom wanted to render classical political economy "scientific" by injecting mathematics into it. Marshall taught Keynes at Cambridge - and Keynes took these curves even further from reality by proposing the concepts of "aggregate demand" and "aggregate supply." Today, Keynesians throughout the world teach Economics to young students using such curves. How does the Austrian School look at Demand and Supply?
To the Austrian economist, the Law of Demand and the parallel Law of Supply are both "laws of thought." If you examine how your own mind works in such situations, you will surely discover these laws in operation. This is basically because of the Principle of Self-Interest - which forms the basis for both these laws. So, if prices go down, you will demand more; if prices rise, you will demand less. And things will be the other way around if you are a supplier. The Austrian economist will teach his students these laws as laws of thought, without employing pretty diagrams. Without mathematics.
Note that in the real world, we can never "observe" the full form of either of these curves. In the real world of individual human beings acting in markets, all we can really observe are the points where these curves intersect - where actual exchange takes place. Thus, there is nothing scientific at all about these curves.
How do Austrians "prove" their theories based on a priori axioms? Very simple. These are proved correct by the very same human logic that made them - and not by measurements, observations, and experimentation as in Physics. Thus, the Law of Demand is correct because to think otherwise would appear absurd and illogical to all human minds. In the natural sciences, particularly in Geometry, there are many such a priori statements that are accepted to be true without measurements and observations - like "no straight line can enclose a space" or "an object that is red all over cannot be green all over." That is, a priorism is a perfectly valid form of scientific reasoning.
The Austrian School has, from its very beginnings, been concerned with methodological issues. The acknowledged founder of this school, Carl Menger, who discovered "marginal utility" (but with the "subjective" element) in 1871, wrote his second book, in 1883, on method. These ideas have been most fully developed by Ludwig von Mises. To all who wish to study Austrian Economics I earnestly recommend Mises' magnum opus titled Human Action: A Treatise on Economics. I am happy to report that this book is available in India from Flipkart.com and you can order it here. The first 100 pages are on method.
To conclude: I was rather upset when a fellow on Facebook commented that I claimed to be possessed of a "monopoly of truth and knowledge." In actual fact, in India, it is The State that makes this claim, and actually operates a monopolistic higher education system to which all other shades of opinion are denied entry. People like me have always been "competing" - and competing hard - through every means possible outside the formal classroom. The masthead of this blog says "Austro-Libertarian Opinion." If you now feel that there is something worth knowing about the Austrian School of Economics, I hope you will study these ideas and discover for yourself their scientific worth. And then, as the famous John Lennon song goes, "I hope someday you will join us."
basically we are talking about the same thing; only the way of expressing it is different. I am not acquainted with Austrian school, having concentrated my self-reading to mostly Greek and other medieval and modern thinkers.
ReplyDeletei do agree with much of what has been said in this blog; in the last thread I was referring to the Kantian a priori view of human knowledge.
Immanuel Kant’s a priori view states that mind can have knowledge independent of experience, or by without having any data from sensory experience.
This is dangerous, because it means that any dictator can come up with his own set of statistics without caring about the ground reality. Like they used to call Soviet Union a worker’s paradise, but the ground reality was something else.
The laws of morality and ethics have been subverted and corrupted by using the a priori strategy of subjective knowledge. Instead of having morality and ethics based on facts, we have these ideas based on the whims and fancies of the dictator’s subjective point of view.
In India, they might say that NREGA a big success, but the thing is that the empirical evidence suggests that this system has failed to deliver. It is not benefiting the poor.
All governments and religious institutions have vested interest in getting people to ignore empirical facts. Hence they use Kantian a priori concept. At the root of leftist dialectics we have a priori concept that seeks to deny the importance of empirical observation in gaining knowledge.
The best government is the one that is based on easily observable facts.
As far as values are concerned, it is necessary that we have alternatives. Without alternatives, values are not possible. If we have only one product available in the market, then that product does not have a value, even if it is very good in quality. If you can’t compare it with another similar product, then how do you know it good, better or best. For values to exist, market must offer alternatives.
How do we decide what alternative is of greater value. By using our sense organs to come up with empirical facts that will help us decide what product is better what is not.
Values must be objective as well. Because without perceiving the item and the alternatives, you can’t decide on its value.
I think we should not say that geometry has a priori knowledge. These are axioms, which are so easily observable through the senses that a lengthy mathematical proof is not needed to prove them.
The only way we can prove anything to be right or wrong is by using our senses to first collect information and then by using our reason to build larger concepts in the mind. There is no other way. Either we become an objectivist, or we fall into the dictator’s trap.