Some Answers for Bryan Caplan

Although I have no doubt that Bryan is sincerely interested in my answers to these questions, I also have the sneaking feeling that he, like a really good chess player, is already three steps ahead of me, and that I’m about to walk into some famous gambit of which I was unaware. I am also, as I noted earlier, mostly interested in talking about methodology so that Austrians can stop talking about methodology and get on with the “doing.” As Bryan’s questions also ask about the doing of economics, I will have to get beyond my issues and answer them in good faith.

1. What are some important, substantive economic claims that can be known a priori?

I am not sure whether Bryan will count these as “important, substantive economic claims,” but I think that we can know that humans act purposively, that they attempt to satisfy their most highly ranked ends first (which implies diminishing marginal utility), and the basic claims of downward sloping demand curves and upward sloping supply curves (which are implied by DMU). For me anyway, those are direct implications of, to use Mises’s phrase, “reflection about the essence of action.”

For what it’s worth, I don’t think the answers to this question and the next matter all that much to the argument I’ve tried to make, though I’m guessing Bryan disagrees. As I said from the start, we can’t even do empirical work without theory (and I agree with Antony’s critical comments about theory-less econometric work), so there are some things we will know without empirical observation.

2. What are some important, substantive economic claims that can be logically derived from a priori knowledge plus a small number of uncontroversial empirical assumptions (e.g. the disutility of labor or the existence of money)?

Again, this is not something I’ve thought about extensively during my middle aged rejection of doing methodology, but one obvious example, given my prior answer, is the downward sloping labor demand curve. Another would be the basic quantity theory of money insight that price inflation results from an excess supply of money (though even there, some institutional assumptions might be relevant).

In general, I think that once we get beyond some of these very basic insights, most of economic theory is in the form of “if-then” statements, where the logical connection between the “if” and the “then” is contingent on certain facts of the world and some institutional assumptions. These, of course, require empirical verification. Are these in the category Bryan is fishing for here? I’m not sure. As I said, I’m much less interested in these sorts of questions than I am in the actual substance of economic propositions and their explanatory power.

3. Economists use multivariate statistics for a reason: to adjudicate between multiple competing hypotheses. Can you name an important, substantive empirical issue where Austrians have grappled with this conundrum? How convincing were the Austrians’ results?

I think this is an example of why I’m unwilling to reject the importance of statistical and econometric evidence. As George noted in an earlier contribution, there are cases where such evidence can help us decide among competing hypotheses, or judge the magnitude of a cause-effect relationship. I just don’t think they are the only way to do so.

One example I would point to in response to Bryan’s challenge would be Pete Boettke’s early work on War Communism. Historians agree that Russia’s War Communism period (1918–1920) was an economic disaster. The standard explanation is that the needs of the civil war required centralization of resource allocation and that pulled resources away from the economy and caused the dramatic decline. The decline, they then argue, was not due to a failed attempt by the Bolsheviks to instate full-fledged economic planning. Furthermore, when the war was over, the Bolsheviks moved to the New Economic Policy, which was what Lenin intended to do all along. The competing hypothesis was, as noted, that the failure of War Communism reflected a failure of centralized economic planning and not the war. Both hypotheses are consistent with the economic data indicating an economy in deep trouble.

Boettke offers a whole variety of non-statistical historical evidence that can be used to adjudicate between the two hypotheses, including Lenin’s own words describing what he thought he was doing, the fact that many of the moves toward centralization pre-dated and post-dated the war, and that Lenin said afterward that the move to NEP was a result of the failure of the prior attempt at centralized planning. The empirical evidence Boettke provides I find to be quite persuasive at adjudicating between the two hypotheses, and I think it persuaded others as well.

4. What are some important, substantive mainstream empirical conclusions that most Austrians either (a) don’t know, or (b) don’t suitably appreciate? What’s going wrong—and what’s the solution?

Well this is hard to answer in the first person, as Bryan is asking for my opinion about what other Austrians don’t know or don’t appreciate. As a good Austrian, I don’t know everything that I don’t know, but I can speculate. I think the list of empirical conclusions that Austrians don’t know is probably pretty long and for at least two reasons. First, “substantive mainstream empirical conclusions” is a huge set, and I would guess most economists would only know a fraction of them if one reads that phrase broadly. Many of the younger Austrians are still deeply engaged in the narrower work that comes with the first years of a career and probably don’t read a lot beyond their specialty areas. Just like everyone else. But second, and more to the point, I think that Austrians historically have not engaged with mainstream literature as much as they might have. Again, I think this is improving but is still an issue.

I think that last point answers the last two parts of the question. What needs to get better is more of that serious engagement with the puzzles and results of the mainstream. If Austrians think we have better, more persuasive, explanations we need to look at that empirical work and offer an alternative explanation that’s better, and the evidence to back it up. So I think the answer to Bryan’s question is, best that I can tell from what I know of other Austrians, “a fair amount.”

Also from this issue

Lead Essay

  • Professor Horwitz makes the case that the Austrian school of economics isn’t just a bunch of armchair theorists. Ludwig von Mises’s “praxeology” should not prevent and has not prevented economists from doing vital, real-world, empirical work on subjects including monetary policy, disaster recovery, communist political economy, and even piracy. Horwitz takes us on a tour of some of this work and suggests that the Austrian school can offer mainstream economics a number of vital insights.

Response Essays

  • Bryan Caplan argues that the Austrian school remains in general much more hostile to empiricism than mainstream economics. Austrian subjectivism is well and good, but its neglect of behavioral economics then constitutes a puzzling shortcoming. And even in the work Horwitz praises, there is little that is distinctively “Austrian”—little that necessarily relies on the distinctive methodological or conceptual apparatus of the Austrian school.

  • George Selgin argues that part of the disagreement at hand is semantic: Where von Mises and other Austrians used the word “economics” to denote what we now call “theoretical economics,” we need not be bound by this convention, particularly not if it tends to obscure. That said, a real disagreement remains, because many in the Austrian school have failed to grasp that a deduced theorem of economics can still be “in the (common) sense”—that is, it may still have no explanatory power over events in the real world. When such cases arrive, Selgin finds that Austrians are all too often flummoxed.

  • Antony Davies expresses admiration for Austrian-school economics as a “complementary approach” to the problems he tries to solve using modeling and mathematics. He finds Austrians at their most incisive in their critique of modern macroeconomics, which is based not on individual behavior, but on an “accounting identity.” He argues that both quantitative and non-quantitative methods can reveal important truths, and he suggests that Austrians should deploy the former in refuting their opponents’ theories.