Is Austrian Economics a Pseudoscience?

Bryan Caplan, a professor of economics at George Mason University and a prominent scholar who studies the anarcho-capitalist implications of public choice theory founded by James M. Buchanan and Gordon Tullock, has pointed out that Austrian economics is in practice closer to “meta-economics” and has substantially defended the empiricist-positivist methodology of modern mainstream economics. Today, the Austrian School faces much criticism for opposing the dominant epistemological paradigm in both the natural and social sciences. The most controversial issue is whether Austrian economics can truly be regarded as a science.

Paul Krugman’s remark likening the Austrian School to a religious sect probably best represents the mainstream academic view of it. The most critical possible view of the Austrian School may be summarized as follows: 1. The Austrian School is pseudoscience because it is far removed from empirical verification or falsification. In other words, because it refuses correction or criticism through empirical-statistical data or information, it does not qualify as science. 2. The Austrian School’s critique of empiricism, based on extreme apriorism and rationalism, is likewise aimed at extreme empiricism-positivism such as logical positivism, and therefore cannot serve as an alternative to relatively moderate empiricism-positivism. In other words, the claim is that the Austrian School adopts an extreme starting point in pursuit of logical consistency, but in doing so overlooks proportionately important elements, and that what is needed instead is a moderate position wary of both extreme apriorism and empiricism.

The first criticism is problematic because it defines science too narrowly. Since the empiricist paradigm came to dominate our system of knowledge, “science” has come to mean the natural sciences in particular; yet in fact, science refers not only to the natural sciences but to scholarship in general. What prevents today’s pseudosciences and quack sciences from being recognized as science is not merely that they are deficient by the standards of natural-science methodology, but that they lack scholarly rigor. The Austrian School is certainly very different from the natural sciences, but it can still be seen as a sufficiently rigorous intellectual system.

The second criticism calls into question the validity of the Austrian claim that economics must necessarily be derived axiomatically and deductively at the a priori level. Because it insists on only one position, the Austrian School is bound to provoke strong resistance. That is because it stands in sharp contrast to the academic attitude encouraged today. The Austrian School’s closed and uncompromising program strongly clashes with the scientific skepticism of the mainstream academy, which values openness, verification, and falsification. Even those who sympathize with or agree with the Austrian School may still feel uneasy about its strict uncompromising stance. For example, the Hayekian tradition within the Austrian School developed in a considerably different way from the orthodox Austrian School led by Mises, Rothbard, and Hoppe, becoming relatively more accommodating to the mainstream. This is because Hayek is seen as having compensated for the Austrian School’s closedness.

Of course, the dangers of an uncompromising attitude must be carefully guarded against. Such an attitude carries a strong possibility of refusing criticism and moving in the wrong direction. Yet it cannot be said that an uncompromising attitude is academically inappropriate simply because of this danger. What matters most in science and scholarship in general are value-neutrality and reality. That is, we must suspend personal value judgments and concern ourselves only with what most closely accords with the facts themselves. Respect for the facts themselves is the only minimum value judgment permitted to the scholar. In this respect, the validity of Austrian epistemology may be said to determine the Austrian School’s academic standing. If one criticizes Austrian epistemology by arguing that it is invalid, that criticism is fully worth considering. But if one rejects it merely because the attitude of Austrian epistemology is uncompromising, that criticism is mistaken.

The author is not qualified to advance a view, since he is not well versed either in epistemology in general or in the Austrian School itself. Accordingly, he cannot speak to the validity of Austrian epistemology. However, one certain truth can still be stated: namely, that the approach to any discipline should proceed in the direction most consistent with the subject matter of that discipline.

The attitude of “physicalism,” which seeks to apply the methodology of the natural sciences to every domain, inevitably runs up against limits. Despite various difficulties, there are ultimately things that cannot be grasped empirically. For example, Euclidean geometry’s five axioms and basic propositional logic cannot be denied. The sum of the interior angles of a triangle on a plane is always 180 degrees, and a bachelor is always an unmarried man. One cannot empirically verify geometry and logic. A physicalist attitude may provide inspiration for discovering facts not yet noticed, but that is only an auxiliary method.

The key question is whether economics is fundamentally oriented toward an empiricist attitude like that of the natural sciences, or toward an apriorist attitude like that of geometry or logic. Our intuition leans toward the former. Economics is the study of economic phenomena. Economic phenomena occur in the real world. Research on the real world must involve experience. Therefore, our intuition concludes that empirical research on economic phenomena is necessary. This is such a natural chain of inference that it has a kind of psychological plausibility difficult to rebut.

However, economic phenomena are the result of human action. Therefore, economics is ultimately the study of human action. If one seeks to go beyond the economy as a surface-level, visible phenomenon and reach its foundation, one must in any case investigate human beings and human action. (Of course, this is common to all social sciences.) How, then, must human action be understood? Mainstream economics has thus far investigated human action by assuming an idealized image of man. Research that begins from hypotheses is inevitably bound to diverge from reality, and then behavioral economics emerged. This is the mainstream’s attempt to understand human beings from the standpoint of empirical psychology. Behavioral economics, being within the bounds of empirical science, naturally has its limits. Not only is it difficult to grasp empirical data completely, but even if one could do so, establishing causal relations is almost impossibly complex. Therefore, the human action described in behavioral economics cannot escape hypothetical status.

Viewed from this perspective, economics will ultimately remain a discipline forever filled only with hypotheses. However useful and close to reality a theory may be, it is not truth. This is not only the academic status of current mainstream economics but also the innate limit of all natural sciences, including physics. It appears that any economist within the boundaries of the mainstream academy accepts these limits as inevitable and feels no particular problem with them. Because this is taken for granted in the natural sciences, it is accepted uncritically as equally natural in economics.

But the Austrian School raises a question. Do the natural world and human beings share the same causal relations, and can they be investigated in the same way? According to the Austrian School, they cannot. The natural world is causal and empirical, but human beings are teleological and a priori. Even if human beings have no free will and are merely things, this does not change. No matter how human action is formed, the fact does not change that it has purpose and precedes its result both logically and temporally. Additionally, one might say that the necessary cognitive limits of the human being as an individual also structure human action.

Focusing on the teleological and a priori characteristics of human action, the Austrian School strongly argues that there are laws of human action logically derived from those characteristics. Basic economic laws such as the law of supply and demand and time preference are not hypotheses subject to verification or falsification, but a priori facts necessarily derived from the laws of human action. So long as it is true that human beings act, this cannot be falsified. In this context, the Austrian School ultimately declares economics to be a pure a priori science.

Mainstream economics has in effect accepted the methodology of the natural sciences uncritically, whereas the Austrian School, starting from a more critical posture, has succeeded in establishing in its own way a distinctive disciplinary domain for economics. Whatever one thinks of the validity of Austrian claims, their attempt to understand as realistically as possible the unique character of a discipline dealing with economic phenomena is highly encouraging and scholarly. It also presents a rational alternative to the natural-science-dependent character of mainstream economics.

Because it is small as a non-mainstream school, the Austrian School may have fewer concrete research achievements or theories than mainstream economics. However, in terms of epistemology and philosophical foundations, the Austrian School addresses topics that mainstream economics does not. From the standpoint of empirical research, the Austrian School may be relatively weak, but conversely, in terms of reflection on the foundations of scholarship, mainstream economics falls far short of the Austrian School.

If the criticism that the Austrian School is pseudoscience is to be valid, then by similar reasoning mainstream economics should be criticized as a heap of groundless hypotheses.

If doubting the rigor and scientific character of the Austrian School is meant to promote better development, that is an attitude worth encouraging. But if one simply ignores and disparages it, that can hardly be considered an academically appropriate approach. Bryan Caplan’s point that the Austrian School concentrates on areas beyond those usually treated in economics is, at first glance, correct. This can be taken to mean that the Austrian School’s academic implications include elements overlooked by mainstream economics. Anyone seeking fundamental reflection on economic phenomena, social phenomena, and human beings should not avoid the Austrian School, but rather treat it as a rigorous field of scholarship and study it seriously.

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Original title: 오스트리아학파 경제학은 유사과학인가?

Author: Kyeong-hoon Kim

Date: 2020-01-02

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=16&idx=22245