Austrian Economics: More Than a Hypothesis!

In a speech at Mises University in 2011, the legendary Austrian economist Hans-Hermann Hoppe argued forcefully that Austrian economics cannot be treated merely as a hypothesis. It is not an empirical science that must be tested out in the world, but rather a working out of logical principles. It must be true. It rests on principles that cannot be untrue.

Hoppe called his speech Praxeology: The Method of Economics. Austrian economics rests on praxeology, which is the study of human action. And human action is a person’s pursuit of valued goals using finite means including time. If the real economics rests on the implications of human action, then one needs to start out with some basic axioms on purposeful human action. Actually, it is more than a start; Austrians argue that a firm understanding of logically-necessary human action should serve as the basis for economic thought. Sure, empirical study will confirm the theory, but the theory doesn’t depend on it. Common sense will do the trick.

What, then, are the implications of praxeology?

  • No one can purposefully not act
  • Every action is aimed at an improvement over what otherwise would have happened
  • A larger quantity of a good is preferred over a smaller quantity
  • What is consumed now can’t be consumed again
  • If the supply is lowered, either the same quantity or more is bought
  • Prices fixed below market-clearing prices lead to shortages
  • Without property, prices are impossible. And without prices, cost-accounting is impossible
  • An increase in property titles without a corresponding increase in real property does not raise social wealth – but leads to a redistribution of existing wealth
  • If the minimum wage is increased to $1,000 per hour, then massive unemployment will result
  • Every voluntary exchange benefits both exchange partners
  • Every coercive exchange has a winner and a loser

These examples are not hypothetical. They are firmly based in the “laws” of behavior and incentives, or what is called “a priori knowledge.” These things must be true, if you just stop and think about it. While a priori knowledge may not tell us very many things, it does tell us some important things.

Hoppe argued that the examples above are different from truly hypothetical questions that you would have to test, such as “Do people prefer McDonald’s or Burger King?” Logical positivists deny there is a difference between these two kinds of knowledge; they neglect common sense and say that everything is just hypothesis and could possibly be negated. I call balderdash and so does Hoppe. To negate any of the implications above should strike you as absurd. To think it is possible that raising minimum wage to $1,000 could increase employment should strike you as absurd.hoppe Logic will hold under all circumstances and should be respected rather than questioned at every turn.

Now this does not mean that the specifics of human actions can be predicted scientifically; for this is the job of entrepreneurs. Making predictions about future behaviors is more of an art than a science. The entrepreneur’s job is to predict the preferences of potential customers to make a profit. Hoppe explained that we cannot predict our future levels of knowledge until we actually have them. There are no “empirical constants” that can predict what people will do in the future.

But the kind of knowledge you can get from praxeology can have the great benefit of avoiding mass harm. For instance, Ludwig von Mises (1881-1973) pointed out in 1920 that socialism could not possibly raise living standards. This is because it is impossible to make economic calculations under socialism. He said it was impossible because there is no private property for the factors of production. And without private property there can be no prices for the factors of production. And the absence of prices is the real problem: we cannot compare the input and output prices to calculate the relative efficiency of production and discover whether we will make money or lose it. “If this is a hypothesis,” Hoppe asked, “then what do we need to do in order to find out whether this is true or not?” The answer is as inescapable as it is horrifying: “We have to introduce socialism first.” And, as we know from history, even though it is proven empirically to fail its victims and lower their living standards, socialist apologists simply say the planners weren’t given enough controls! Hoppe mocked the idea, imagining what the partisans of coercion might say in defense of socialism: “It might be different if we also controlled the weather or if Stalin puts on a hat which he did not put on the year before or if he murdered a few more Ukranians – then it might work out perfectly or alright.”

So the problem with talking about “empirical economics” is that it enables power-mongers to try their ideas out on less powerful people. Unfortunately, trying out bad economics causes great evils against real humans and then nobody bothers apologizing to the families of the dead because they excuse their bad economic theories endlessly. They posture and say that it wasn’t a pure enough test for their perfect ideas and must be tried again, risking more lives.

It is better to require economics to be rational and true from the beginning; true from its basic axioms.


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