Thursday, October 8, 2015

Walter Block’s An Austrian Critique of Mainstream Economics: A Critique on Epistemology

This is a talk by Walter Block on Austrian economics and its disagreements with neoclassical economics, given at the Mises Institute in Auburn, Alabama, the US, on 21 July, 2015.



I want to focus on epistemological issues here.

Let us review the epistemological problems here one by one:
(1) the Austrians badly misunderstand the philosophy and epistemology of the logical positivists.

For Austrians like Block the expression “logical positivism” is simply an ignorant term of abuse for all empiricists whom they regard as their opponents. However, there are (to my knowledge) virtually no logical positivists today, and strict logical positivist philosophy is not what is used by empiricist modern opponents of Austrian praxeology. In fact, logical positivism had had its day and had been largely abandoned by the 1950s. Modern moderate empiricism is not logical positivism.

The central element of logical positivist philosophy was the verifiability criterion for meaningfulness: the view that if a statement could (1) not be categorised as a true analytic a priori statement and (2) was not a synthetic a posteriori statement that could be verified, then it was a meaningless metaphysical proposition. This idea of course has very serious problems and proved the Achilles’ heal of logical positivism, and one of the many reasons for its rejection in mainstream analytic philosophy. Even the leading British logical positivist A. J. Ayer admitted that the core of logical positivism was wrong and it was badly flawed as a complete, coherent philosophy.

But moderate empiricists in mainstream analytic philosophy today are not logical positivists and do not accept the verifiability criterion, facts which Austrians seem ignorant of. These embarrassing philosophical errors are also committed by the Austrian Hans-Hermann Hoppe.

(2) If (1) isn’t bad enough, Block conflates logical positivism with Popper’s falsificationist principle. Popper thought that all the empirical propositions of science must pass the test of not being falsified: as long as a current scientific theory has not been falsified, then a rational person should accept it, but it must still be subject to testing in the future so that continued acceptance of a theory must depend on it continuing to pass the falsifiability test.

But that Popperian epistemological principle of falsificationism is not logical positivism, which was instead concerned with the verifiability of empirical propositions as a test of their meaningfulness.

Worse still, Block seems (if I am not mistaken) to imply that modern empiricists and the older logical positivists never accepted the necessary truth of analytic or pure mathematical statements, yet again the same mistake made by Hans-Hermann Hoppe. For the real logical positivist perspective on epistemology, see here.

(3) Block’s fails to mention or make explicit that the epistemological basis of Mises’ praxeology is Kantian synthetic a priori knowledge: the idea that there are statements both empirical (synthetic or non-analytic) and necessarily true of the real world. Kantian synthetic a priori knowledge, however, cannot be accepted as real nor defended anymore, and all alleged synthetic a priori statements can be re-interpreted as either analytic statements or (2) empirical statements (= synthetic a posteriori). As Block notes, even mainstream neoclassicals reject Mises’ praxeology because even they cannot accept such a flawed and unconvincing epistemological basis to economic science.

Yet, as Block notes, the Austrian school itself is divided over the very epistemological foundations of economics: there are Austrians who follow Hayek in rejecting praxeology and apriorism and who embrace a moderate empiricist method. Thus the Austrian school cannot even agree itself on whether praxeology is right or wrong.

(4) in Block’s argument about the exchange of a pen for a tie, he has not proved anything with necessary truth, for the simple reason that the person taking the tie might actually be mentally ill and have no opinion about the pen or the value of the tie at all, or alternatively he might be lying and hate the pen and like his tie more but be merely pretending to like it. The assumption that the person must by necessity value the pen more than the tie is sloppy logic and plainly untrue.

(5) Block’s assertion that there is a necessary tendency for profits to fall to zero in Mises’ evenly rotating economy would be necessarily true, but only as an analytic a priori statement asserted of a purely imaginary world or abstract model. The point is: it would not be an empirical statement, and so its necessary truth is a property of its analyticity. The only way one could maintain the necessary truth of something empirical (or synthetic) is to defend Kantian synthetic a priori knowledge. But, as we have seen above, the Austrian epistemology of Mises based on Kantian synthetic a priori knowledge cannot be seriously sustained or defended and this is why Austrian attempts to assert necessary truths of the real world fail time and again.

(6) Block also appears to be arguing that there is a necessary tendency for profit rates to be equalised in capitalism. This is untrue, and requires assuming certain assumptions about the real world that are not true, such as an unrealistic degree of competition across markets, no significant market power, no or minimal barriers to new entry, no strong patent rights giving certain companies a great advantage unavailable to competitors, no aggressive use of capacity utilisation as a barrier to entry, and no significant, persistent differences in profit mark-ups in different sectors and industries.

To what extent there is a tendency for profits to be equalised in real world capitalism is nothing but an empirical question.

(7) So too regarding the idea that minimal wage laws always cause unemployment when this is asserted as a necessary truth, it remains nothing but an analytic a priori statement asserted of a purely imaginary world or abstract model. The question whether any particular minimal wage law tends to cause unemployment in the real world is an empirical question.
Further Reading
“Why Should we reject the Existence of Synthetic a priori Knowledge?,” May 23, 2014.

“Hoppe’s Caricature of Empiricism,” September 10, 2013.

“Hoppe on Euclidean Geometry,” September 11, 2013.

“Hoppe on Euclidean Geometry, Part 2,” September 14, 2013.

“Hayek on Mises’ Apriorism,” May 23, 2011.

“Mises versus Ayer on Analytic Propositions and a priori Reasoning,” March 16, 2014.

“Kirzner on Hayek on Prices,” May 22, 2013.

“Does the Market Tend to Drive Profits to Zero?,” January 11, 2014.

“Sraffian Long-Run Equilibrium Prices of Production and Post Keynesianism,” April 11, 2015.

“Epistemology in Modern Analytic Philosophy: A Review,” September 17, 2013.

2 comments:

  1. Excellent post LK.
    Trading a pen for a tie is a behavioral proxy for a presumed underlying preference.
    Since behavior can have many causes, is conditioned on states of knowledge, and implicates many presumed underlying proclivities no apodictic conclusion can be drawn from it.
    Behaviour is a useful source of inference not a proof.

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  2. Hi LK,

    I am on very weak ground re philosophy. I cannot see how Austrians can truly claim that praxeology can possibly give us the effects of wage rate changes on aggregate employment or on unemployment.

    If there is an excess supply of labour in a particular industry ( and assuming any change in wage rates in that industry do not have any major impact of the demand for commodities produced in that industry), a fall in wages might increase employment as the the labour costs of firms in the that industry fall.

    However, when looking at the economy as a whole, Austrians often forget the fallacy of composition. If wages are cut across the board, then not only are labour costs cut but aggregate demand is also likely to be affected.

    No amount of praxeology can tell us what the net impacts on employment are. The cost reduction impacts of a cut in wages work to simulate the economy but the demand reduction impacts of lower wages work in the other direction. As you point out praxeology is no substitute for empirical evidence.

    It is about time most Austrians gave up praxeology. Economics is meant to be an empirical social science applied to the real world, not a game of logical gymnastics, applied to a non existent world.

    John Arthur.

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