Monday, February 20, 2006

 

Austrian Method

The method of Austrian economics is praxeology. I defer the definition to Murray Rothbard:
Praxeology rests on the fundamental axiom that individual human beings act, that is, on the primordial fact that individuals engage in conscious actions toward chosen goals. This concept of action contrasts to purely reflexive, or knee-jerk, behavior, which is not directed toward goals. The praxeological method spins out by verbal deduction the logical implications of that primordial fact. In short, praxeological economics is the structure of logical implications of the fact that individuals act.
This "action axiom" is where it all starts. The Austrian school and mainstream (neoclassical) economics begin to split at this fundamental stage. Although neoclassical economics assumes "rationality" on behalf of economic actors, it is narrowly defined. Rational, in the textbook sense, means wealth-maximizing or utility-maximizing on some well-defined and known constraints.

This is not Austrian economics. What I've learned from Austrian economics is that nothing is that simple. There is no way to know what a person's indifference curve looks like at any moment, let alone what their utility maximization parameters are. The mathemtics of optimization (taught in economics graduate schools everywhere) is interesting and clean, but substitutes "economic man" for individuality and purposeful action.

Austrian economists dismiss both economic man and the mathematics that follow because they are untrue assumptions. Since men are all different, they can't be put in predictable equations. Even the same person does not have the same preferences in different situations or at different times. So any calculations based on these false assumptions are wrong. Even if they yield good predictions (do they ever?) they leave out the one component that is central to Austrian economics: purpose.

Perhaps the best way to define Austrian economics, then, is by its purpose. The goal of Austrian economics is to make the world intelligible in terms of human action and to trace the unintended consequences of such action (Hayek). Contrast that with the neoclassical approach: to study the allocation of resources. The first acknowledges the hearts and minds of human beings while the second remains on the surface.

Comments:
Very nice Travis
 
That sounds very good and well, and the rhetoric might even make one wonder why (Neo-)Classical/Keynsian economic thought has any place at all (lol irrational exuberance), but please enlighten me: How exactly can praxeology be modelled on an aggregate scale... at all?
 
This comment has been removed by a blog administrator.
 
Well, I'm not sure it's any harder to fit human behavior into equations than it is to boil down all of human action to a single set of assumptions from which it can be deduced.

Personally, I think Austrians have more in common with "mainstream econ" than typically believed. Here is a good site by Bryan Caplan (you've probably seen it before).

http://www.gmu.edu/departments/economics/bcaplan/whyaust.htm

And just for fun, here's a funny post on praxeology by Will Wilkinson of the Cato Inst.

http://willwilkinson.net/flybottle/2005/11/16/mises-the-yogi/
 
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Andrew: There is such a thing as Austrian Macroeconomics (business cycle theory). This is too long, so feel free to direct specific questions to me.
http://www.mises.org/story/657

There are many things that Austrians believe to defy measurement, like capital, that neoclassicals measure all the time.

Also, the very idea of equilibrium (especially the perfect competition model) is not accepted by Austrians as a valid assumption (actual equilibrium does not exist). Instead, they talk about the "market process".

Dallas: The action axiom is not an assumption; it's an axiom. From Rothbard's 'Praxeology: The Methodology of Austrian Economics'

"The action axiom, in particular, should be, according to Aristotelian philosophy, unchallengeable and self-evident since the critic who attempts to refute it finds that he must use it in the process of alleged refutation. Thus, the axiom of the existence of human consciousness is demonstrated as being self-evident by the fact that the very act of denying the existence of consciousness must itself be performed by a conscious being. The philosopher R.P. Phillips called this attribute of a self-evident axiom a "boomerang principle," since "even though we cast it away from us, it returns to us again." [24] A similar self-contradiction faces the man who attempts to refute the axiom of human action. For in doing so, he is ipso facto a person making a conscious choice of means in attempting to arrive at an adopted end: in this case the end, or goal, of trying to refute the axiom of action. He employs action in trying to refute the notion of action."
 
***Post 1***

Well, first, as your link states, Mises only considered the axiom of action to be a priori. Other assumptions are made but they are "broadly empirical". Supposedly, from this collection of assumptions (and the axiom of action) we can deduce explainations for human behavior. At least that's how I understand it.

But, personally, I'm not convinced that the axiom of action is a true axiom (a self-evident foundation for knowledge). So I consider it just another assumption. I'll explain.

As a trivial point, I can certainly think of times when the axiom does not hold (when individuals do not act), for example when they're dead. :)

I call this point trivial because Mises showed himself very capable of bending his definitions of man and action to suit his ends (as elaborated in the Wilkinson link). For example, he could just say "oh, but a man is not a man unless he is alive". So maybe my point isn't trivial, but instead easily deflected by redifining (or "elaborating") ones terms.

But this dodge doesn't cut it either. Since in other instances Mises claims his definition of man doesn't apply to living men that don't act a certain way (namely Buddhists. See the Wilkinson link.)

On close inspection, the definitions Mises uses for man and action seem artifical and serve to exclude much of human behavior (elaborated in both the Wilkinson and Caplan links). Thus leaving his axiom not at all self-evident (to me anyways). And worse leaving praxeology far less useful than originally marketed.

But I have deeper concerns for this methodology, which I elaborate in post 2.
 
*** Post 2 ***

My main concern with this method is the attempt to deduce explainations for human behavior from a universal set of assumptions (and the "axiom of action").

Even if we concede the axiom of action to be true, your article recognizes that other "empirical" assumptions must be made. But which ones do we include? And more importantly, how do we know we are including ALL the relevant assumptions?

This seems very hard to answer without falling back on testing the collection of assumptions by testing the predictions they make. How do we know we've included all the relevant assumptions? When the predictions match reality. Or at least, that seems the only way I can see.

Now I am certainly not a positivists, and it seems the same critiques can be launched here.

----

I should say that I am certainly not an expert in the subject. And I know you are currently taking a course in Austrian econ, so you might be able to help me with some of my questions.

As you know I've always had an interest in methodology. And I look forward to hearing your responces.

:)

Cheers!

--DW
 
First, I will not try to defend Mises. I don't agree with him. I'd much rather defend Rothbard since we line up much more closely.

Rothbard was a radical empiricist. His notion of an axiom was something that was such a part of human nature (or learned behavior from nature) that it was self-evident and impossible to refute. So, to Rothbard, all parts of Austrian economics are radically empirical.

About Buddhists: give me a break. They have goals, and they employ reason to reach them. That is action, as defined by both Mises and Rothbard. I don't see why that is supposed to give Austrian economists so much trouble. Do Buddhists live outside of a means-ends framework?
 
Well, maybe Mises should be the one giving you a break. :) Because he is apparently defining action differently than you are attributing to him.

Check out this section of Human Action (it's at the bottom under Vegetative Man).
http://www.mises.org/humanaction/chap1sec6.asp

Synopsis: Mises describes Buddhism (among other philosophies) as a philosophy that believes life to be only suffering and that true Happiness can only from complete extenction. So, a Buddhists route to salvation is abandon thinking and acting--to become like a plant (vegetative man).

Then Mises says (quote) " The subject matter of praxeology is human action. It deals with acting man, not with man transformed into a plant and reduced to a merely vegetative existence."


----


And like I said before, I don't see how Rothbard's "axiom" of action (individual humans act)is an "axiom" as you are defining. I believe my prior complaints still stand for Rothbard as they did Mises.

Maybe you can point out where I am going wrong.
 
Also, I would point out again that my biggest worry isn't over self-evident nature of the "axiom" of action.

My major concern is with reliabley using the deductive method to explain human behavior.

Like I said in *** Post 2 ***, I don't see how we could know whether we are including all the relevant assumptions or not without testing the predictions of that set of assumptions.
 
Perhaps Travis, you should start again and explain the axiom of action as proposed by Mises.

I suppose that inactivity is still an activity. Just like choosing to do nothing at all is still a choice. Additionally, I am not sure how true it is to explain that Buddhists do nothing. With the possible exclusion of monks, they still interact with people and make decisions for future actions. They can not exist, but for a short period of time, being totally vegetative. Although this plant-like nirvana may be desirable, just like perfection or heaven, it is not truly attainable.
 
Chris,

Good point and I was thinking the answer might fall along those lines. But once I start trying to figure in one acting to not act and the purpose of action to avoid purpose, I start getting google headed. :-P I can see why Mises wanted to avoid the subject.

Really guys. I'm working. :-P It's just veeeeerrrrrrryyyy slow today. Which is an alltogether new and exciting thing. Work has been crazy for almost a month. It's nice to have a slow day.
 
Well Dallas, be my guest. Post anything you want and keep it up.
 
I'll back Chris up. And I never knew Mises addressed the Buddhism critique. My bad.

But I think your problem with Austrian economics is that it can't explain enough. I think that's a valid point. The method is fairly prohibitive compared to standard methods such as finding statistically significant relationships between variable quantities.

But again, if you grant the action axiom, and if everything deduced from it follows logically, then it must be correct. Personally, I think the deductive process is for really uptight economists who need everything to be perfect before moving on. Sometimes approximation can go a long way.
 
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