Before elaborating on my reasons as to why I am uninterested in the works of Austrian economics, it would be most beneficial for the reader to understand what Austrian economics is. In brief Austrian economics is a school of thought built upon similar foundations as welfare, Neo-classical economics, and principles that are often a derivative of these two fields. For example, both Austrian economists and mainstream economics assume that consumer behavior has at least some kind of rational element. Henceforth the economic models provided by both schools of thought may vary slightly, but in many cases both are based off of very similar assumptions. One shouldn’t be surprised that a school of thought developed in the early part of the 20th century would include these principles. After all, economics of that time period was still muddled in the works of 19th century thinkers. Thus, Austrian economics is a school of thought that relies on the framework of 19th century economists.
Economics as a social science has evolved greatly since the early parts of the 20th century, and although many of its fields still rely on some old axioms it has developed new methodologies, research techniques and so forth. Meanwhile the Austrian school refuses to participate, and conduct research with these advancements in thought. Therefore, Austrian economics has become an exclusive field that only dedicates itself to playing by its own rules. Thus even when Austrian economists are right, or share the same conclusion as others, there isn’t much else to gain beyond this. In short my disagreement with Austrian economics relies on the fact that their findings lack creativity, innovation, and similar concepts that form the core of developing greater insight. What use is a field of thought if it restricts the mind from engaging in creative, and critical thought?
The following passage is derived from an essay written by Bryan Caplan in which he explains as to why he is not an Austrian Economist. This is simply a preview of my next blog post, which shall go into detail explaining as to why I am not an Austrian Economist. Finally, Caplan’s critique will differ considerably from mine, but some of the key concepts that he explores will be apart of the next post. Henceforth, anyone who is curious about what I plan to present should try to become familiar with the terms in Caplan’s essay.
Austrian scholars have made important contributions to economics in recent years. I personally am most impressed by the work of Lawrence White and George Selgin on free banking and other monetary issues, though certainly other Austrians have made significant contributions too. Set in historical context, I also consider the economics of Mises and Rothbard to be a great achievement in spite of my numerous reservations about it. Yet all too large a fraction of Austrian research has not been in economics at all, but rather in meta-economics: philosophy, methodology, and history of thought. Admittedly, much of the meta-economics stems out of the work of F.A. Hayek and his numerous interpreters, whose contributions to economics the present essay did not discuss save by implication. But the students of Mises and Rothbard have done more than their fair share of meta-economics too. Neoclassical economists go too far by purging meta-economics almost entirely, but there is certainly a reason to be suspicious of scholars who talk about economics without ever doing it. Paraphrasing Deng Xiaoping, “One should not talk of methodology every day. In real life, not everything is methodology.”
While the substantive contributions of Austrian economists to economics are significant, their sum from Human Action on is small compared to the progress that neoclassical economics has made over the same time period. The ten good ideas listed in section 4.3 are only the beginning of what economists have learned since 1949 – in spite of the large deadweight cost of mathematics and econometrics. Mises and Rothbard certainly produced an original alternate paradigm for economics – and applied this paradigm to a number of interesting topics. Unfortunately, the foundations of their new paradigm are unfounded, and their most important applied conclusions unsound or overstated. The reasonable intellectual course for Austrian economists to take is to give up their quest for a paradigm shift and content themselves with sharing whatever valuable substantive contributions they have to offer with the rest of the economics profession – and of course, with the intellectually involved public. In sum, Milton Friedman spoke wisely when he declared that “there is no Austrian economics – only good economics, and bad economics,” to which I would append: “Austrians do some good economics, but most good economics is not Austrian.”