A good chunk of the recent literature on the economics of development deals with very Austrian themes: planning vs. markets. For instance, Bill Easterly came last year to the PPE workshop at GMU to present his work on the “Return of Central Planning in Economic Development”. His current work is also immersed in the debate, and his assessment of Jeffrey Sachs’ latest book (which is a plea in favor of a big plan to put an end to poverty) uses themes and arguments that are very Austrian.
What is unfortunate is that Austrian economists are not really at the discussion table. While today’s themes have been familiar to economists in the Austrian tradition for 80 years or so, no one really invites them to come and tell the world about it. Austrians should be leading the debate, but they are not. Why is that so?
It is worth reflecting on this state of affairs to continue building up a strategy to engage in a debate with the rest of the profession in the hope of some day leading the discussion. Here are some (neither mutually exclusive nor jointly exhaustive) hypotheses that come to mind to explain the current situation:
• H1: We are simply delusional as to what Austrian economics (AE) can explain. It explains far less than what we believe.
• H2: AE contributions are very important, but they have already been incorporated into the mainstream (this is what Gary Becker told me once).
• H3: AE is a school of chiefs with no soldiers. These chiefs are perceived to have lots of wisdoms but no conjectures about the world that could be tested by the community.
• H4: Verbal logic is not adequate to explain economic relationships. In the absence of formal logic, one cannot really test propositions. In other words, syntactic logic matters more than semantic logic.
• H5: Science is not about absolutes, but about refutation. If AE is about (apodictic) certainty, then it is not a science, but a pastime.
• H6: AE (i.e. praxeology to use Mises’ term) is the only correct approach to social science, but because of their belief in H1 to H5, other economists don’t get it.
Many economists buy into H1, considering that they either have never heard of AE or they just know F. A. Hayek as a philosopher (and thus subscribe to H2). H3 was perceived as true for a long time, but is becoming less and less the case. There are now far more econ students interested in AE than there were 20 years ago. I have met many students in the world from New Zealand to Estonia who are interested in AE.
I believe the real difficulties come with H4 and H5. The training received in economics these days makes anyone suspicious of those who only use verbal logic – even if students realize that semantics is also important. Ultimately this is because of H5: testing assumptions is mostly what economists (and many other social scientists) say they do.
I find this upsetting because most economists are victims of, as François Guillaumat would put it, the “Friedman Paradox”: they preach scientistic pseudo-experimentalism as the only methodology and epistemology but they act as if their beliefs, including their philosophical ones, were apodictically certain. Among other things, they reason as if economic laws were logically true, while singing the song of “testability” all the time (i.e. statistically verifying that 2+2=4). (Given that you literally can't conceive of an exception to real economic laws, this demands that they be distorted in order for "refutations" to be imagined, which in turns provides opportunities for some to "succeed".)
Since a revolution in the philosophy of science is not going to happen any time soon (scientism is here to stay for some time), what strategy do we adopt?
One possibility is to triangulate. One can use field work research, statistical information, and the media as empirical sources. This is not about testing, but about illustrating the logic of choice at work in the world. Triangulation is a way to draw a bridge with more mainstream economics.
However, in most cases it is very difficult to overcome the strongest hypothesis H4 and H5 – even with mainstream economists who are sympathetic to some of what AE is about (e.g. central planning does not work). A reason for this is that AE is seen as a sect of economists who are dogmatic, unscientific, and ideologues. (It is interesting that “the sect” was a name given to economists in 18th and 19th century in France.) But H4 and H5 rest on a false conception of science. The real ideologues are not the Austrians but those who refuse to understand the nature of economic science (even though they fall prey to the Friedman Paradox most of the time).
It is hard to be at the discussion table when people think that you can’t prove your case. However, a strong argument going for AE is that of the unicorn: show us one instance of central planning working well; show us one instance of minimum wage laws which do not reduce resources available for production; show us one instance of market regulations that has no unintended consequences. There are no unicorns in the economic world, and we know this trough logic, not testing.
Austrian economists are not yet at the discussion table, and this is frustrating. However, it could be a case of Salieri and Mozart. Like Mozart, AE will come be appreciated over time because it is simply too good to be ignored (while Salieri will be forgotten). The ultimate question for economists in the Austrian tradition is: which discussion table do we want to be at? The one today or the one in a few hundred years from now with Mises? H6 is therefore also true…