Indeterminacy, Social Science, and Praxeology

|Peter Boettke|

Two claims are often made about praxeology.  First, that it represents the method of Austrian economics.  Second, that it represents not anything new with Mises, but the continuation of how the great economists in the past had in fact always done economics.  Which claim is true?

On another matter, Mises famously said in describing the uniqueness of the sciences of man the following: "If you throw a rock into a water, it will sink.  If you throw a stick into water, it will float.  But if you throw a man into water, he must decide to sink or swim."  Does this mean that 'single exit' theories are misapplied in the social sciences?

Last week for my PhD seminar, the reading assignment included Russell Hardin's Indeterminacy and the Social Sciences and Jon Elster's Explaining Social Behavior.  Both books embrace indeterminacy while also maintaining the structure of rational choice theory.

One implication of this position is to accept the plea for mechanism rather than looking for determinate equilibrium solutions in the social sciences.  Consider the following: in The Road to Serfdom Hayek makes an argument that in the political instantiation of socialism the "worst will get on top", but in his essays on the benefits of free competition and the market process in Individualism and Economic Order, as well as elsewhere, Hayek seems to be arguing that within a free market "the cream will rise to the top".  Both "the worst get on top" and "cream rises to the top" are mechanisms, in the Elster rendering of the social sciences explaining those mechanisms and indentifying the specified conditions that produce one rather than the other is our task.

Can you think of other examples, where single exit theories are rejected, but the embracing of indeterminacy open the analysis up for an understanding of the 'mechanisms' that actually explain the what and why in the social world?

Comments

[Jerry O'Driscoll]

Another example with the Road to Serfdom: the old criticism that the book's thesis was proved to be false because the West didn't descend into serfdom. That criticism misinterprets the book as presenting a single-exit theory. Hayek offered his fellow citizens the opportunity to choose liberty or serfdom. They chose the former.

[Peter Boettke]

Yes, Jerry. Ulrich Witt explained the idea as the "endogenous public choice theorists", where the very idea of what could go astray led to changes in the structure so that the world didn't go astray as predicted, but that was only because the warning was heeded.

[Adam]

I'll throw this in to rile up Mario and the gang:

In this claim is implicit a distinction between causal mechanisms and events. What critical realists call the "real" and the "actual." Just because a particular causal mechanism pushes toward a particular, actual outcome does not mean that outcome will be realized, because there may be countervailing forces.

I think Kirzner's take on the market process falls in this camp. The price mechanism as such pushes entrepreneurs in the direction of coordination. The actual plans they will conceive of--and whether they increase or decrease the level of coordination--is a distinct matter, for other factors will matter, most notably indeterminate ones. Action (or expectations or entrepreneurship) may be coordinating or discoordinating all things considered, but it does not follow that the price mechanism is. It is precisely because action is open-ended that, to help coordinate plans, institutions need to affect actions in a definite way.

In other words, Lachmann's criticism of Kirzner mistakes a mechanism (the coordinating power of prices) for an event (the actual resultant level of coordination). More charitably, both sides were simply talking past each other. Kirzner's story isn't about entrepreneurship as a part of action but rather about how one institutional form affects that part of action. So Kirzner is speaking catallactically, Lachmann praxeologically.

Let me couch this by saying: I don't care if this is a terribly accurate history of thought, because I think the substantive claims are right. Austrian economics has always been about particular chains of causality, not about resultant events and their potential conjunctions.

[Mario Rizzo]

Adam,

I dealt with this matter in my article, "Hayek's Four Tendencies Toward Equilibrium" available at my bepress site. I appropriate Bishop Whately's two meanings of "tendency" -- empirical and analytic. A problem is that Kirzner so attenuates what he means by "tendency toward equilibrium" that I think it is of little practical value in understanding the world.

Btw, I think your statement: "The price mechanism as such pushes entrepreneurs in the direction of coordination." is meaningless. Prices and price differences must be interpreted as regards their likely implications for the future. There is no "as such."

[Mario Rizzo]

Pete,

Mises's praxeology builds upon a tradition in economics that includes such people as Nassau Senior, John Stuart Mill, and John Elliott Cairnes. However, it by no means includes greats like Alfred Marshall or even Frank Fetter who believed that positive time preference was a psychological generalization. (And what about Boehm-Bawerk for that matter?)

I do not find Mises's development of the a priori method persuasive. He gets stuck in too many places. And many (most?) of his substantive conclusions do not depend on his method.

As to the the swimming example,I understand the point. However, the example itself is ill-chosen. Quite plausibly, in that situation a person's automatic reaction takes over. He just swims when his life is in danger.

The Road to Serfdom example is interesting. The problem is similar to the one faced by slippery-slope analysis. In my paper with Glen Whitman, "The Camel's Nose..." we say that slippery slope events do not have to occur even if slippery-slope arguments are perfectly reasonable and correct. (Remember these arguments do not say what will happen but what will, with increased probability, not certainty, happen.)

But the argument can itself move from one *about* human action to one that is an *input* into human decisionmaking itself. (Hayek has a roughly parallel distinction between speculative ideas and constitutive ideas, respectively.) The latter is the "cautionary tale" function of slippery slope arguments. So if the argument is accepted the events it lays out may not occur. (Is this like the Heisenberg Principle?)

All this creates havoc with the falsifiability criterion applied to hypotheses. This is something that needs to be explored further.

There is a lot of fascinating stuff here.

[Brian Pitt]

Though you guys already know this, Buchanan and Wagner's "Democracy in Deficit," Buchanan's "The Reason of Rules," Coyne's "After War," and the entire Virginia Public Choice School, certainly falls into this camp. And of course the Workshop in Political Theory and Policy Analysis founded by Vincent and Elinor Ostrom.

I will go further, and include the entire Katrina Project as embracing indeterminancy in an effort to explain the "what" and "why" in the social world.

[Adam]

Thanks for proving my point, Mario. The source of potential discoordination in your example comes from the agent rather than the price mechanism. In formal terms, you said "A can't cause X because B can cause not-X." Obviously it doesn't follow.

You might instead insist that we can't analyze the causal effect of the price mechanism apart from the agents (i.e., no "as such"). I think a distinction needs to be made here, between separation and, well, distinction. Prices never exist separately from agents, obviously. That doesn't mean we can't distinguish causal effects proper to the price mechanism, or any other emergent social phenomenon. The Austrian account isn't in real danger of doing this, because it runs their causal power through agency.

Example: your argument above is in English. English obviously has characteristics not unlike a social structure. Your argument above is also (in my estimation) wrong. But it would be a mistake to jump to the conclusion that English was the factor causing the argument to be wrong.

My point is not that I think Kirzner's argument is untouchable. It's that the Lachmanniacs haven't met the argumentative burden to show where it falls short. We know that the potential for discoordination is inherent in (the Austrian account of) agency. But that's beside the point. To unseat Izzy K, you'd have to show an instance where the price mechanism itself plays a discoordinating role.

It's wholly conceivable. But if that's been done, I haven't seen it.

[Mario Rizzo]

A Kirznerian price system example: Resources valued at $50; output valued at $60. What does the entrepreneur do?

It depends on whether the differential will persist. This is a matter of interpretation. Now, both the price differential and the interpretation figure into action. There is no interpretation without the phenomenon to be interpreted.

Where do we get Kirzner's analytical tendency toward equilibrium? Well, if the differential maintains itself then simple entrepreurial response to it gives the right answer. Duh.

Keep also in mind the fact that the individual can profit from a socially-destructive unsustainable "bubble" if he get out in time. Here profit does not enhance social coordination (in any but a tautological sense)and yet it is what the entrepreneur's alertness sniffed out. Tendency toward what????

I think the problem here is a desire to say a lot about *processes* aprioristically. (As Jerry and I said in Econ of Time and Ignorance the apriori method works best in a static context.) The outcome of such a desire is never pretty -- either error or escape from reality. As Ayn would say: it is either/or.

Is this really an appropriate topic for Saturday night and Sunday morning?

[Jerry O'Driscoll]

In an earlier comment, almost in passing, Mario points out what I think is the most important implication of Pete's post. "All this creates havoc with the falsifiability criterion applied to hypotheses." Falsifiability is a methodology for "single exit" theories.

[Mario Rizzo]

Pete,

Another point. The Road to Serfdom analysis of the worst getting on top as contrasted to the market argument about the "cream" flowing to the top is easily explained on the basis of the different system constraints. It need have nothing to do with the "single-exit" issue.

[Adam]

I still don't get where the discoordination is coming from the actual price mechanism in Mario's response. I'm willing to be convinced, but its going to take more than the word "bubble."

But no matter. Not only is this a suboptimal forum for such a detailed discussion, but Jerry won the thread with his second comment, so I'm out!

[phil from austria]

does anybody know where Mises coined that quip?