Critique of Austrian Economics: A Critique [Part 2]

This is part 2 of my critique of the Critique of Austrian Economics by AustrianCritique.

Critique of Austrian Economics: The Scientific Method

AC: Mainstream economists use the scientific method, while Austrians use deduction from a priori truths. People are free to choose and unpredictable and can act differently even if placed in the same situation twice, which is why according to Austrians positivism doesn't work.

"A priori knowledge is logic, or knowledge that exists in a person's mind prior to, and independent of, outer world experience. For example, the statement "two plus two equals four" is true whether or not a person goes out into his garden and verifies this by counting two pairs of tomatoes."

The mainstream approach is inductive, while the Austrian is deductive. This doesn't mean Austrians don't refer to real-world events and data in their writings. They just don't do it in the usual scientific way.

So Austrians get to critique the real world, while the real world is prevented from informing their theories. Even their predictions are "qualitative" and not "quantitative" so they can call the government "bad" even if the numbers don't show this.

Really: That people are unpredictable and free to choose is indeed a blow against positivism. But that's not all. There is no Ceteris Paribus in the real world, so we can't do experiments like scientists in laboratories do. A myriad of things are not even measurable, so statistics can't help with those even if laboratory-like conditions were achievable.

Austrians get to critique the real world if they have the truth on their side. If they don't, then it shouldn't be hard to demonstrate that there's a mistake in their line of reasoning somewhere. But more importantly it's not like Austrians haven't taken information from the real world to theorize. When the first draft of the business cycle was completed in 1912[1], there probably was no theory behind the overconsumption boom yet. When the real world indicated that this was possible, a theory was formed as to how that was possible within the Austrian framework[2].

Now the part about qualitative vs. quantitative prediction is pretty funny from my perspective. I think that quantitative prediction is nothing but an act of hubris. Basically it's like saying "I can make god-like predictions about the future by making a model out of an entire society." This kind of mentality is one of the reasons mainstream economics is dead from the neck up. Making qualitative predictions is simply acknowledging the limitations of what we can know.

AC: The Austrian approach(rationalism) to philosophy hasn't been considered serious since the 17th and 18th century. It was widely abandoned after its inadequacies were laid bare by other schools of thought: empiricism, positivism and most famously by Immanuel Kant's Critique of Pure Reason. The Austrian approach is a relic of history.

Really: There is something called The Whig Theory of the History of Science[3]. It states that science always progresses onward, becoming always better. What we have now is better than what we had before. Obviously this is not how the world works and just because something is old doesn't mean it's untrue. But here we find something quite ironic. Unsurprisingly AC has not read Mises(actually he probably hasn't read Kant either), or he would realize that Kant was a great influence on Mises and that Mises actually built upon what Kant had previously said. The philosophies of those two aren't incompatible with each other, quite the opposite[4].

AC: "The problem with rationalism is that it makes the search for truth a game without rules. Rationalists are free to theorize anything they want, without such irritating constrictions as facts, statistics, data, history or experimental confirmation. Their only guide is logic."

Really: On the other hand there are no rules, on the other hand it is guided by logic? Logic is a rule! A priori knowledge is obviously another rule. You can't make stuff up and say it's a priori knowledge, because even an amateur philosopher could spot the mistake if you made one. And to quote J. Grayson Lilburne: "The reality of action is an experienced fact.[5]"

AC: "Starting assumptions and trains of logic may contain inaccuracies so small as to be undetectable, yet will yield entirely different conclusions."

Really: There might be a celestial teapot on the orbit right now. It can't be detected, but it's still probably there. Seriously this is his argument? We need to scrap the entire thing, because there might be a mistake somewhere and this mistake is so small it can't be detected?!? This is the most pseudo-scientific critique I've read in months. And hey, doesn't this same argument apply to statistics? Oops!

AC: "In fact, if we accepted all the tenets of the Austrian School, we would have a second reason for why it fails to qualify as science. To be a science, a school must produce theories that are falsifiable --that is verifiable. If a theory's or correctness cannot be verified, then it is not science. ... Austrian economists make claims about the market(such as markets know better than governments), but then deny us the tools for verifying those claims(such as statistics). One might ask: How do they know?"

Really: Unless you argue that collected data is 100% precise, everything in the economy is measurable and that there exists ceteris paribus, then mainstream economists can't verify or falsify anything either. But then again, it's not like Pythagoras' theorem can be verified with empirical evidence, so I guess geometry isn't a science?

Austrians say that the price mechanism and incentive system make it so that governments probably don't allocate resources as efficiently as the private sector. That is not the same as "markets know better" in the mainstream sense.

And in the final part of this "video" AC really messes up. Let me quote him in lenght.

AC: "Austrians claim to know these things by logic. But although their literature frequently evokes the term "a-priori" knowledge, this term appears to be misused. Human are not born knowing "two plus two equals four." It is something they must learn from their environment, namely school. Forging this learned knowledge into axioms comes later, and then through a process of trial and error. So in this sense, "a-priori" knowledge doesn't even exist, unless one refers to a very basic level of knowledge capability, such as the physical construction of the human brain or animal instincts."

Really: Well now we know AC hasn't read any Kant, since he conflates a priori with inborn knowledge; two completely different things. More Lilburne:
"He tries to say that because we learn 2 + 2 = 4 via experience (school), that 2 + 2 = 4 is a posteriori knowledge. But a posteriori knowledge is knowledge that is derived from the facts of experience, not knowledge learned in the course of experience. That 2 + 2 = 4 is necessarily true is derived from pure definition, and is thus a priori."

AC: "Austrians may be using the term “a priori” to mean logical proofs or axioms, such as “If A = B and B = C, then A = C.” But if Austrians were creating economic axioms that were true by logical force, then the Austrian School would become world famous overnight, whether mainstream economists liked it or not."

Really: Many mainstream economists do recognize some of these axioms as true... Marginal utility, law of demand and so on? "Humans act" is an economic axiom too, maybe AC could refute that somehow(without acting would be nice...)?

To be continued...

[1] The Theory of Money and Credit
[2] Can ABCT Explain the Overconsumption Boom
[3] Why I Wrote My Histories of Thought
[4] Was Mises Right?
[5] A Critique of Pure Nonsense