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Economic Science and the Austrian Method

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Hans-Hermann Hoppe (1949- ) is a philosopher and economist writing in the "classical" Austrian tradition, which is to say in the tradition of Mises and Rothbard. He is also one of the most creative thinkers in that tradition. (His work, Democracy: The God that Failed, is a brilliant extension of Austrian thought into the realm of politics.)

This little work (which is a collection of some stuff previously printed) provides a good introduction to and defense of Austrian methodology. The question is this: what is the status of the laws and principles of economics? Are principles such as "the law of marginal utility" everywhere and on all occasions true, or are they empirical generalizations subject to falsification? Mises - writing in the tradition of Kant and Leibniz - argued that the principles of economics are a priori. Misesian methodology therefore falls within the Kantian and rationalist tradition. (Hoppe rejects the interpretation of Kant given by Rand as "arrogant ignorance.) Economics, according to Mises, is closer to disciplines such as logic and mathematics than it is to the natural sciences. In his defense of the Austrian method, Prof. Hoppe provides brief but useful critiques of empiricism, historicism, and relativism.

Mises's central works in this area are Human Action, Epistemological Problems of Economics, Theory and History, and The Ultimate Foundation of Economic Science.

Hoppe writes a very heady defense of the Austrian economic tradition. As many traditional economic theories seem to be failing us in these times, Austrian economics are getting a second glance. This book is not an intro for the lay reader - it's a book about methodology. Most specifically, it defends the belief that economics should an abstract science (similar to mathematics and logic) as opposed to an empirical science (similar to chemistry).

While I disagree with the conculsions, the arguments are worth knowing. The difference in theoretical versus empirical work is also a key difference between the Austrian and Chicago schools.

Austrian economic theory has a peculiar characteristic which distinguishes it from other various schools of thought within economics. That fundamental difference lies in its philosophy of knowledge, the basic assumptions that one takes on the nature of knowledge, and in this case of how to interpret and investigate phenomena.

Modern schools of thought (Neo-classical or Keynesian economics, for example) are strongly based on empiricism, and the application of the scientific method as a way of explaining economic activity. This philosophy of knowledge and methodology has been imported from the natural sciences into the social sciences, due to its successful application in fields such as physics or chemistry. In economics, empiricism has strongly established itself in the field and is still influential in the formation of economic theory. Austrian economists, following the philosophy of von Mises, are directly opposed to the application of empiricism in economics, and propose an alternative philosophy of knowledge which von Mises described as praxeology. Praxeology is strongly influenced by the Kantian philosophical tradition of knowledge, and in particular, of the concept of a priori knowledge.

Hoppe's book is a critique on the application of empiricism in economics, and a defence of praxeology as the logical and desirable alternative to the current empirical tradition. As a summary of the Austrian position on methodology, this book is quite successful. However, do not be fooled by its small size. This is a dense book, quite rich in philosophical vocabulary, and can be proven a difficult read.

outstanding little book for those who are ready to take on a more difficult read. covers the philosophical foundation of economics. i enjoyed it immensely.

Hoppe's little book here is less than a 100 pages but i feel that I could write millions of pages about the wealth of ideas contained inside. This is economics written in the grand old philosophical spirit, in Hoppe's wonderfully uncompromising and logically rigorous style. This is strongly recommended to the following types of people: (1) anyone who appreciates Mises or Rothbard who has not yet read Hoppe; (2) any "mainstream" economist who wants an introduction and strong defense of the Austrian paradigm; (3) any intelligent laymen who thinks economics is the "dismal science" and wants to get a taste of how exciting and fascinating economics really can be.

_Economic Science and the Austrian Method_ does a wonderful job of explicating and defending the Austrian, or more specifically the Misesian, or "praxeologic", foundations of economic analysis. At the same time it suggests a promising re-interpretation of traditional rationalist philosophy from within the framework of praxeology. Hence, these writings are not just important for economics, but rationalist epistemology in general. Hoppe wants rationalist philosophers to find strength in praxeology, as the strongest defense against skepticism and relativism. He also wants economists in the Misesian tradition to see their place in the broader picture of philosophical rationalism.

Hoppe sees three competing philosophies that claim to offer a foundation for economics. He sets up his position contra empiricism and historicism, which he finds to be contradictory philosophies that cannot provide the proper foundations required. (Please note, some reviewers have completely misinterpreted this -- historicism is NOT the same as [economic] history.) With the contenders decisively refuted, rationalism stands vindicated. From here, he shows how we can have what Kant called synthetic a priori knowledge, using the a priori of action and argumentation, which is the core premise from which economics (praxeology) derives its laws. It follows that we have real knowledge about economics that is justified without observation, a simple and familiar example being the law of supply and demand.

Key to this is Hoppe combining Mises' praxeology with the Apel-Habermas doctrine (the a priori of argumentation and communication) with a praxeological twist, arguing that our a priori knowledge of action and argumentation constitutes the foundation of epistemology as such. I think this is a stroke of genius. With this established, he argues that praxeology is not only the foundation of economics, but also logic, mathematics, geometry, and causality. With the logical constraints established, he explains the limits of economics but also its huge importance.

I would point out one minor criticism, which I hope is addressed by future Austrian scholars. Hoppe sets up a false dichotomy when it comes to "realism" and "idealism" in the final essay. Yet it is important to note that by realism he seems to mean what Josiah Royce called "naive realism", and by idealism he seems to mean only "subjective idealism." Yet objective or absolute idealism, which I would say is the natural metaphysical ally of traditional rationalism, is nowhere considered to be a possibility. Future philosophical work in this area may iron out the metaphysical issues, but for now Hoppe's casual analysis of this particular question suggests a future path for philosophical research that I would like to see explored.

I was hoping to learn a lot more about the Austrian method and it's interpretation of economics. Well, as the title states, this sounded like a good start but it's simply not a good primer for the subject. In fact, one of the lessons the author states several times is the lack of value in making predictions in economics. Well, making a prediction about what this book was actually about was a complete waste of resources. There are some nuggets of valuable information and it's a very short read but it's more of a philosophy book than an economic book. Just beware, it might not be exactly what you think it is and that was pearl of wisdom I attained.

This book is very dry and difficult reading, as bad as Mises "Human Action", though thankfully much shorter, or I never would have read it, as I never finished "Human Action".

The Austrians try to base everything on fundamental ideas, what they call "synthetic a priori" after Kant, I have never read Kant so I can't tell you whether their claim that their ideas are Kant's "synthetic a priori" or not; but they are the same types of ideas I have been calling for years "undefinable primitives". These ideas that they try to base everything on, "action", "value", "cause and effect" aren't some mystical information from nowhere, which is what earlier reading about Kant had suggested he thought - I think they are ideas absorbed from observation of reality and how humans act (and,unfortunately, what people have absorbed through reading and stories, which is why so much "intuition" on larger issues is often so irrational), but they are so basic that they are hard even to discuss intelligibly, much less define.

A second part of the Austrians' disagreement with conventional economics is based on the supposed differences between human motivations and interests and the natural world - "the impossiblity of causal predictions in the field of human knowledge and actions" (p.43). Human preditions must be based on actions and goals, and what the particular human knows at the time he chooses his actions and goals. The particualrity of what a human knows is another reason they dislike and distrust statistical knowledge, like the GDP, it loses too much necessary information.

"... empirical knowledge which is based on understanding - just as according to our intuitions economic propositions claim to be based on understanding - rather than on observations." (p.57) Actually, as I suggested above, our intuitions and understanding are based on internalized observations and knowledge received from others.

A part of Hoppe's argument in the book is a misguided (in my opinion) attack on a sort of naive empiricism that I have never actually encountered. I haven't read much technical economics literature, so it's possible some economists are making these sort of shallow mistakes, but what I have read in economics suggests this is unlikely.

Another part of his argument is an attack on historicism in economics, I think this is even more misguided, without historical knowledge Austrian economics could not have been developed. Also, some of the best economic reading I have done has been by Thomas Sowell, an economic historian. Another good economics writer is David D Friedman, a non-economist.

The best part of Austrian economics is that they give a clear rational account of the few things nearly all economists agree on: minimum wages increase unemployment, wage and price and rent controls cause other (non-price) forms of rationing, and so on.