An Arrow Against Error - Take # 2

The other day, I had briefly written on how Science that deals with the objects of nature - through the method of observation and measurement of "regularities" - cannot be allowed to transpose this method into Economics, because in The Market all data are in a permanent flux and there are neither regularities nor any "mathematical constants." There are only "variables."

I then briefly described the methodology of the Austrian school of economists, how their "subjective" focus made them look into the human mind and find regularities in "laws of thought."

Thus, the laws of demand and supply are laws of thinking common to us all - they are not our "responses to stimuli." Our actions are guided not by external events, but by our thinking.

The other day, I began a re-read of Ludwig von Mises' Theory and History and found that in the introduction itself, he makes this point extremely well:

...we do not know how external events—physical, chemical, and physiological—affect human thoughts, ideas, and judgments of value. This ignorance splits the realm of knowledge into two separate fields, the realm of external events, commonly called nature, and the realm of human thought and action.

Mises goes on to explain the difference between the science of human thought and action and that of physics and chemistry:

The sciences of human action start from the fact that man purposefully aims at ends he has chosen. It is precisely this that all brands of positivism, behaviorism, and panphysicalism want either to deny altogether or to pass over in silence. Now, it would simply be silly to deny the fact that man manifestly behaves as if he were really aiming at definite ends. Thus the denial of purposefulness in man's attitudes can be sustained only if one assumes that the choosing both of ends and of means is merely apparent and that human behavior is ultimately determined by physiological events which can be fully described in the terminology of physics and chemistry.

Mises goes on to describe the difference between objects of nature and Man

Epistemologically the distinctive mark of what we call nature is to be seen in the ascertainable and inevitable regularity in the concatenation and sequence of phenomena. On the other hand the distinctive mark of what we call the human sphere or history or, better, the realm of human action is the absence of such a universally prevailing regularity. Under identical conditions stones always react to the same stimuli in the same way; we can learn something about these regular patterns of reacting, and we can make use of this knowledge in directing our actions toward definite goals. Our classification of natural objects and our assigning names to these classes is an outcome of this cognition. A stone is a thing that reacts in a definite way. Men react to the same stimuli in different ways, and the same man at different instants of time may react in ways different from his previous or later conduct. It is impossible to group men into classes whose members always react in the same way.

[You can find a PDF of the book here.]


Thus, statistical measurements and mathematical "modeling" are inappropriate for the Science of Economics, which must rely on "discursive reasoning." Economics is a "logical science." You will not find a single mathematical equation, statistical chart or table, nor any graphs in any book by an Austrian economist.

A few years ago, I read somewhere that Mises used to tell his students to carefully study An Introduction to Logic and Scientific Method by Morris R. Cohen and Ernest Nagel. I got myself a copy. The last chapter is titled "Fallacies" and its third and last section is "Abuses of Scientific Method." In this section, under the sub-heading "The fallacy of Simplism or Pseudo-Simplicity" the authors have an interesting example of why "ideas" matter - or, rather, that the world of matter and the world of ideas are separate fields of inquiry:

Thus popular materialism thinks it is scientific in arguing there is nothing in the world but matter, because everything we can talk about intelligibly contains matter or reference to it. But obviously, erroneous views exist in this world, and the materialist cannot argue that errors are themselves material. Errors do not exert electric or gravitational influence. And if he argues that only matter has real existence, he has only given us an implicit definition of "real existence"; he has not effectively denied that there are other elements in this world besides matter.

What you see in all those charts and graphs and mathematical equations is not "science." They are all examples of "pseudo-simplicity." Hayek called this "scientism" - the imitation of the methods of science. But it is really worse than that. Because it seems simple to grasp, it conveys its errors more powerfully.

A great example of such a "pseudo-simple" textbook is the best-selling one by Paul Samuelson. It used to be in technicolour in my time, with charts, graphs and whatnot. It trained you to see the world in Keynesian complexities. Yet it was "simple."

Robert Higgs of The Independent Institute has written of the "dangers of Samuelson's Economic method" - and you can find this article here.

After long and thorough reasoning, Higgs concludes:

Seventeen years ago, Reason magazine invited a number of writers, including me, to contribute a brief entry for a feature called “Know Thy Enemy.” The idea was that each of us would “suggest a book published in the last 50 years that is significant because it has helped promote wrongheaded ideas with serious consequences” (1993, 32). For my contribution, I selected Samuelson’s Foundations. If I had to identify such a book today, I still could not think of a more apposite choice.

Incidentally, Paul Samuelson was the first American to win the Nobel prize in Economics, which he received for having "done more than any other contemporary economist to raise the level of scientific analysis in economic theory."

Indeed, errors have a material existence. And they cause havoc. Especially in the Science of Economics, which concerns human survival. Mainstream Economics is nothing but error - beginning with their epistemological foundations, their very method, their "theory of knowledge."

Friedrich Hayek wrote a slim book on the history of positivism titled The Counter-Revolution of Science: Studies on the Abuse of Reason. Well worth a read. The "IIT-IIM mind" is the perfect example of the deliberate cultivation of such mindsets in socialist India - all in error. The "abuse of reason."

To understand the Austrian method in a few pages I suggest Hans-Hermann Hoppe's excellent introduction, which you can find here. Read the first chapter a few times. The second might just confuse you, so you can leave it for some other time.