I’d like to thank Matt McIntosh for taking the time to comment on my post (Why Aren’t Austrians at the Discussion Table). I believe indeed that methodology and epistemology are the main reasons why Austrians are not invited and perhaps the reasons why they won’t be invited for a long time.
I used to be a Keynesian social democrat (I had an excuse: I was very young and was born in France) who believed in the universal Popperian criteria for science. I am now an Austrian economist who believes that economic laws are apodictic in nature.
What made me change is reading Mises and Rothbard, but also older economists, such as Jean-Baptiste Say, John E Cairnes, Nassau William Senior, Emile Kauder, and others. Kauder explained that economic laws are ontological and that to be an economist is also to be a metaphysician. Austrians are not alone in claiming that economic laws (as well the laws of mathematics, geometry, etc) are apodictically certain. They are in good company with many other economists.
However, this tradition has almost disappeared in the 20th century. In short it is due to the adoption of the methodology and tools of the hard sciences in economics and the influence of Popperian philosophy in the scientific community. An example of this influence can be shown in what Matt McIntosh wrote:
“I literally can conceive of exceptions to economic laws, just as I can conceive of exceptions to physical laws, or unicorns. Show me a perpetual motion machine and the laws of thermodynamics will have been falsified. Show me a large body whose movements don’t obey the equations of General Relativity and GE is in some serious trouble. Either Sautet’s imagination is significantly more impoverished than mine, or he’s using his words in a very idiosyncratic manner. And it looks from here like he’s doing nothing but psychological projection when he suggests that other economists “reason as if economic laws were logically [i.e. a priori] true,” because that’s simply false — economists reason as if many of their hypotheses have held up very well to criticism and testing, um, because they have. Other issues such as the finer points of business cycle theory are much more contentious and up in the air.”
Here are two examples of what I mean by apodictic certainty:
• Economics teaches that one finds more value in what one receives than in what one gives up in exchange. This means that voluntary exchange is always productive of value for both parties (provided there is no deceitful conduct etc). The implication of this is that free trade is always beneficial. This is a law of economics which is TRUE a priori and does not need to be tested (and in fact cannot be tested).
• Another example is that everyone has an interest in specializing in what he or she knows best comparatively to what others know. The principle of comparative advantage is another economic law which is TRUE a priori and does not need to be tested (and in fact cannot be tested).
One can find many other examples but these two are sufficient to show my point. I defy McIntosh to show otherwise. Free trade and comparative advantage are economic laws; they are the result of logical deductions and axiomatic concepts, and not of empirical testing. They result from the logic of choice and not from the observation of reality (which is not the case in physical sciences). They are true not because “they seem to correspond to the facts” as McIntosh puts it, but because we cannot imagine them not being true. Jean-Baptiste Say, John E Cairnes and the classical economists knew this very well.
Popperians generally retrench behind the veil of “tautology”: mathematics is true by definition, therefore it is just tautology and it is not science – so who cares about it. Milton Friedman, in a famous discussion with the mathematician Stanislas Ulam, admitted that trade theory is a pure tautology but is still true. In that sense the Friedman Paradox is alive and well in the economic community. Economists preach scientistic pseudo-experimentalism (and these are the real “psychological projections” to use McIntosh’s term) as the only methodology and epistemology but they act as if their beliefs, including their philosophical ones, were apodictically certain.
Ironically, the necessity of axiomatic concepts is also true in the hard sciences. McIntosh should try to do physics without the a priori valid principles of geometry and mathematics, and we’ll see what kind of results he obtains. They are also necessary to the philosophical principles McIntosh uses to defend his methodological position (that scientific inquiry entails falsifying conjectures for instance – is it testable?).
Critics of Austrian Economics often contend that Austrians reject all forms of empiricism. The truth is that Austrians reject the idea that economic laws have (a) an empirical foundation and (b) that they could be tested. The law of diminishing marginal utility is logically true and even if one wanted to test it, it would not be possible. Just like one cannot test the law of gains from trade.
While economic laws cannot be tested (and don’t need to be), we need to understand the context in which these laws operate. In that sense, empirical research is fundamental to economics (especially with regard to institutions, culture and the broader context in which human decisions are effected). Empirical research in economics is thus only observation of historical facts, which put together with the laws of economics, enable us to unearth the causal connections that link them. Empirical work in economics is not about testing economic laws; it is about understanding the context in which they apply.
Because the phenomena of economics (such as value) are phenomena of the mind, they cannot be observed. In that sense, the method of economic science must be different from that of the physical science where observation is necessary. Economic laws are a priori certain, while physical laws are not. One can perhaps imagine exceptions to the law of gravity as we know it today (although the ceteris paribus clause also applies to physics in the sense that physical laws ultimately have the same ontological status as economic laws), however one cannot imagine exceptions to the logic of choice. As François Guillaumat would put it (and I recommend his doctoral dissertation to those who want to understand the reasons behind Austrian epistemology), what matters in economics is the validity of concepts and the coherence of reasoning. Only then, can one apply economic reasoning to real situations in order to understand them.