Hutchison on the History of Hayek’s Views on Economic Methodology

In “Hayek, Mises and the Methodological Contradictions of ‘Modern Austrian’ Economics,” T. W. Hutchison examines Hayek’s developing views on methodology in economics and the split on this issue within the Austrian school.

Hutchison (1994: 213) notes that Hayek’s original views on methodology were apparently derived from those of Friedrich Wieser and a kind of apriorism called “the psychological method.”

Hayek was then influenced by Mises and his circle and, according to Hutchison, held views close to Mises’ (Hutchison 1994: 215), although this does contradict Hayek’s later statements and his claims to have been a follower of Popper’s empiricism even from 1934 (Hutchison 1994: 216).

Hutchison (1994: 215), however, argues that no traces of this Popperian methodology can be found in Hayek’s writings before 1937, but Popper did recollect that Hayek read his book Logik der Forschung around September/October 1935 (Hutchison 1994: 217).

Hutchison (1994: 215–216) speculates that the economic controversies in the mid and late 1930s, especially about the role of expectations, stimulated Hayek to question his earlier views.

The public statement of his new views was in the talk “Economics and Knowledge” given in November 1936 and then published as an article in 1937 (see Hayek 1937; Hutchison 1994: 216).

But unfortunately Hayek’s break with Mises was so timid and weakly expressed that many, especially modern Austrians themselves, have missed the point of “Economics and Knowledge”:

“In the … letter to this writer of 15 May 1983, Hayek also stated that his ‘main intention’ in ‘Economics and Knowledge’ was ‘to explain gently to Mises why I could not accept his a priorism’. Unfortunately, the message to Mises, which it was Hayek’s ‘main intention’ to deliver in this celebrated article, was imparted so ‘gently’ that forty to fifty years later it had still not got through to most ‘Modern Austrians’, who, of course, found the fact of a vital, fundamental division of views between the two great patron saints of their movement difficult to accept.” (Hutchison 1994: 218).

The paper “Economics and Knowledge” also saw Hayek grappling with questions about how an economist could justify real world tendencies to general equilibrium, when this required perfect knowledge and foresight.

Hutchison (1994: 221–22) even contends that in later life Hayek questioned the characteristic Austrian idea of “methodological dualism.”

The break between (1) Hayek and some later Austrians who endorse some form of empiricist method in economics and (2) the Misesian apriorist praxeologists represents a serious division within, and incoherence in, the Austrian school (Hutchison 1994: 229–230).

Hutchison’s verdict on Misesian apriorism is difficult to fault:

“What Misesian, or ‘Modern Austrian’ praxeology succeeds in achieving is a quite unacceptable combination of dogmatic, ‘apodictic certainties’ with total empirical vacuity. Instead of being left with the traditional, full-knowledge ‘theory’, we are provided with the marvellously rich, enlightening and totally uninformative model—or Misesian ‘apodictic certainty’—that people act with whatever tastes, and whatever kind of knowledge and ignorance, which they happen to possess.” (Hutchison 1994: 228).

Addendum
Philip Pilkington has an interesting and critical post here on George A. Akerlof’s famous, but much overblown, paper “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism” (The Quarterly Journal of Economics 84.3: [1970]: 488–500), which can be related to the very issues that Hayek discussed in “Economics and Knowledge” – namely, the unrealistic nature of perfect information and general equilibrium models as related to the functioning of markets:

Philip Pilkington, “The ‘Information Asymmetry’ Paradigm is Vacuous,” Fixing the Economists, August 1, 2014.

BIBLIOGRAPHY
Hayek, F. A. 1937. “Economics and Knowledge,” Economica n.s. 4.13: 33–54.

Hutchison, Terence Wilmot. 1994. “Hayek, Mises and the Methodological Contradictions of ‘Modern Austrian’ Economics,” in T. W. Hutchison, The Uses and Abuses of Economics: Contentious Essays on History and Method. Routledge, London. 212–240.

Hutchison, Terence Wilmot. 1994. The Uses and Abuses of Economics: Contentious Essays on History and Method. Routledge, London.

Detlev Schlichter on Mises’ Apriorism

Detlev Schlichter speaks here on Mises’ apriorist method for economic science.



Some points:

(1) Schlichter’s example of the dice (from 7.40 onwards) and a priori probability does not give us necessary knowledge of the real world. An a priori probability remains a property of an analytic a priori system and is nothing but pure mathematics. As soon as we move from abstract pure mathematics to the real world and to any particular real world dice, we cannot know a priori and with necessary truth that the dice is not loaded and that the probability of rolling any of the numbers is really 1 in 6. I discuss this important point about probabilities here. It is precisely empirical evidence that is required to know with a strong degree of probability that any given dice is not loaded, and that the probabilities for rolling any given number conform to the a priori probabilities.

(2) The issue about a priori knowledge is whether it gives us necessary knowledge of the real world. This is extremely doubtful, and, curiously, Schlichter seems unaware that Mises required Kantian synthetic a priori knowledge to make his praxeology work, but never even notes this point or attempts to defend Kantian synthetic a priori knowledge.

Just because one engages in some abstract thought experiment which is an analytic a priori model, it does not follow that such a model gives us necessarily true knowledge of what happens in the real world. This observation alone is enough to damn the extravagant claims made by Austrians about apriorism in economic thinking.

(3) The absurdity of the idea that we can know a priori that any real world barrier to free trade will necessarily be harmful is debunked here.

(4) a careful analysis of the human action axiom shows that even that cannot be known as true a priori, and is an empirical proposition.

(5) the idea that all situations involving human beings are unique (stated at 38.17) is simply not true. Some human behaviours, even with different people, can and do have a high degree of similarity. Generalisation regarding social phenomena is possible, and so is empirical testing.

(6) in regard to Schlichter’s example of the minimum wage and its effects, the whole argument is nothing but abstract thought experiment which is ultimately an analytic a priori model: the idea that a minimum wage law can only ever be counterproductive applies only to the purely imaginary world of the thought experiment where all the conditions assumed hold as true (e.g., wages are set by marginal product of labour, wages and prices are all or mostly flexible and set by supply and demand, many businesses do not make their production decisions by quantity/demand signals, rather than by price signals, there is a very high degree of competition and no severe barriers to entry, etc.). If one assumes that everything holds as true in an analytic a priori model, then of course empirical evidence will not refute it, but the price is that the model is reduced to a vacuous and tautologous system.

But the real world is simply not like this, and we have no reason to think that a minimum wage law must necessarily in all cases be counterproductive.

Further Reading
“Mises’ Praxeology: A Critique,” October 1, 2010.

“Limits of the Human Action Axiom,” February 28, 2011.

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

“Mises and Logic,” August 26, 2011.

“Karl Popper’s View of Mises,” October 2, 2012.

“My Post on Praxeology gets some Attention,” March 7, 2012.

“Mises Flunks Evolution 101,” April 2, 2013.

“What is the Epistemological Status of Praxeology and the Action Axiom?,” July 27, 2013.

“Barrotta’s Kantian Critique of Mises’s Epistemology,” July 28, 2013.

“David Friedman versus Robert Murphy,” August 4, 2013.

“Mises Fails Philosophy of Mathematics 101,” August 30, 2013.

“Bob Murphy All At Sea on Geometry and Economic Epistemology,” August 31, 2013.

“Mises’s Non Sequitur on synthetic a priori Knowledge,” September 2, 2013.

“Tokumaru on Mises’s Epistemology,” September 3, 2013.

“Reply to a ‘Red Herring on Praxeology,’” September 6, 2013.

“Mises versus the Vienna Circle,” September 7, 2013.

“Mises’s Flawed Deduction and Praxeology,” September 8, 2013.

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

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

“Robert Murphy gets Mises’s Epistemology Wrong,” September 13, 2013.

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

“Mises on Kant and Praxeology,” September 15, 2013.

“Mises was Confused about the Analytic–Synthetic Distinction,” September 15, 2013.

“What is the Epistemological Status of the Law of Demand?,” September 19, 2013.

“A Simple Question for Austrian Apriorists,” November 20, 2013.

“Mises, Action and Uncertainty,” December 4, 2013.

“Córdoba on Praxeology and Economics,” December 7, 2013.

“Schuller’s Challenge to Misesian Apriorists has never been answered,” December 7, 2013.

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

“David Gordon on Praxeology and the Austrian Method: A Critique,” March 13, 2014.

“Why Mises’s Praxeological Theories are not Necessarily True of the Real World,” March 15, 2014.

“Mises and Empiricism,” April 17, 2014.

“Mark Blaug was Right on Mises’ Method,” April 30, 2014.

“Why Should we reject the Existence of Synthetic a priori Knowledge?,” May 23, 2014.

Schuller’s Challenge to Misesian Apriorists has never been answered

Many years ago, George J. Schuller reviewed the first edition of Mises’s Human Action (1949). Murray Rothbard (1951) wrote a reply to this review, and in turn Schuller (1951) answered Rothbard’s criticisms.

In his reply, George Schuller provided a devastating epistemological critique of Human Action, and then a challenge to Austrian praxeologists that has never been answered:

“2. Mises uses the methods of introspection, deduction, and (incidentally) reference to fact. He fails to distinguish between the ideal use of these, which perhaps would result in a perfect praxeology consisting of incontrovertible truths, and the use of them by a fallible mortal like himself. Introspection is a valuable scientific tool, but its very immediacy, which enables the user to avoid errors of more roundabout methods, may lead him to subjective bias, inaccurate generalization from himself to all others, and overconfidence in the soundness of his conclusions. The conclusions should be checked carefully by other methods, such as observation of the behavior of persons unlike one’s self and questioning of them concerning their motives. ….

In Mises’ uncritical usage introspection becomes not a scientific method but the basis of a creed. The words which he attributes to the worshippers of collectivism may with equal appropriateness be attributed to the worshippers of introspectivism: ‘We are right because an inner voice tells us that we are right and you are wrong’ (p. 152).

Are the praxeological axioms universally and incontestably true in the same sense as the laws of logic? The denial of the laws (or rules) of logic results in absurdity. The denial of Mises’ laws does not. From the rules of logic alone no substantive propositions can be deduced. Idealists and materialists, atheists and Thomists, capitalists and communists all may use the rules of logic with equal facility to arrive at or support their opposed positions.

But Mises attempts to deduce substantive propositions from his laws—e.g., that governmental curbs on the drug traffic, or alcoholic ‘prohibition,’ lead to socialism (pp. 728–29). That Mises’ use of logic as a scientific instrument falls short of perfect rigor may be readily demonstrated. (a) After telling us that ‘it is nonsensical to reckon national income or wealth’ or other aggregates (pp. 218-29), he insists that the free market ‘raised the average standard of living to an unprecedented height’ whereas intervention’s ‘inexorable final consequences’ include a ‘drop in the quantity of goods produced’ (pp. 741–51).1 (b) His example of choice on page 201 (operas) does not lead to his inferences.

The higher a deductive edifice is built, the more numerous are the syllogistic steps required in its construction and the more numerous are the assumptions (stated or implied) on which the structure rests. The probability of error (except for supermen) increases with both.

So far as empiricism is concerned, Mises tells us his axioms are logically prior to fact and therefore cannot be tested by fact. Yet he often (and Rothbard: e.g. 6, d) cites facts as if they provided support for his conclusions and for the axioms, postulates, and logical procedures from which the conclusions have been derived. Mises thus disarms his critics of a weapon which he renounces in principle but uses in practice. And such phrases as Rothbard’s ‘universally recognized’ (points 2 and 4) or ‘everyone will consider’ (point 5) surely are not meant as empirical assertions, since ‘the vast majority’ cannot ‘grasp complex chains of abstract reasoning’ (point 6, e).” (Schuller 1951: 186–187).

“6. Acceptance of Mises’ stated axioms does not necessarily imply acceptance of the ‘principles’ or ‘applications to reality’ which he has drawn from them, even though his logic may be impeccable. When a logical chain grows beyond the limits set by stated assumptions, it uses unstated assumptions. The number of unstated assumptions (axioms, postulates, or other) in Human Action is enormous. If Mises denies this, let him try to rewrite his book as a set of numbered axioms, postulates, and syllogistic inferences using, say, Russell’s Principia or, closer home, Von Neumann’s Theory of Games as a model.” (Schuller 1951: 188).

If the economic theories of Mises’s book Human Action really are derived by painstaking and valid deductive argument, then it should be possible to set the book out in a formal symbolic form in which all axioms, premisses, and deductions are shown formally and proven.

No Austrian has ever done this, and anyone who has read the first few chapters critically will quickly discover the reason why: there is no formal deduction going on by which Mises’s inferences are carefully and painstakingly deduced from the human action axiom.

Even after inspecting Mises’s own informal method of “verbal deduction” does not help in identifying how inferences are formally “deduced” from the action axiom either.

It seems impossible that the conclusions and theories even of the first few chapters can be deduced from the action axiom and the few others Mises starts with.

Even by Chapter XI (on “Uncertainty”), I am willing to bet that Mises’s whole apriorist project has collapsed, as I show here.

Just to establish the existence of a world where humans face an uncertain future in the sense of (1) being unable to perfectly predict the future, and (2) being unable to provide objective probability scores for future outcomes or events in certain processes requires many inductive arguments and a great deal of empirical evidence, from the natural and social sciences and the relative frequency theory of probability.

The only attempt I am aware of to write out some of Mises’s arguments formally is the paper I discussed in the last post. But the paper deals with but two of Mises’s axioms and no derived economic theory whatsoever, and, fundamentally, rejects Mises’s use of synthetic a priori knowledge and argues that praxeology is only analytic a priori.

But this means that even if you write out the arguments of Human Action formally, you have proven nothing necessarily true of the real world, because the instant analytic a priori theories are applied to the real world, they would be given an empirical hearing and tested by experience.

And that leaves Mises’s claims about praxeology – that no experience can ever refute his economic laws – in utter ruins.


BIBLIOGRAPHY
Mises, L. von. 2008. Human Action: A Treatise on Economics. The Scholar’s Edition. Mises Institute, Auburn, Ala.

Rothbard, Murray N. 1951. “Mises’ ‘Human Action’: Comment,” The American Economic Review 41.1: 181–185.

Schuller, George J. 1950. Review of Human Action: A Treatise on Economics, by Ludwig von Mises, The American Economic Review 40.3: 418–422.

Schuller, George J. 1951. “Mises’ ‘Human Action’: Rejoinder,” The American Economic Review 41.1: 185–190.

My Posts Refuting Misesian Apriorism and Praxeology

My posts below explain why Misesian apriorist praxeology is untenable and requires non-existent synthetic a priori knowledge. In particular, Misesians have a badly flawed understanding of the philosophy of mathematics and geometry, which they use to defend their apriorism:

“Mises was Confused about the Analytic–Synthetic Distinction,” September 15, 2013.

“Mises on Kant and Praxeology,” September 15, 2013.

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

“Robert Murphy gets Mises’s Epistemology Wrong,” September 13, 2013.

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

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

“Mises’s Flawed Deduction and Praxeology,” September 8, 2013.

“Mises versus the Vienna Circle,” September 7, 2013.

“Reply to a ‘Red Herring on Praxeology,’” September 6, 2013.

“Tokumaru on Mises’s Epistemology,” September 3, 2013.

“Mises’s Non Sequitur on synthetic a priori Knowledge,” September 2, 2013.

“Bob Murphy All At Sea on Geometry and Economic Epistemology,” August 31, 2013.

“Mises Fails Philosophy of Mathematics 101,” August 30, 2013.

“Barrotta’s Kantian Critique of Mises’s Epistemology,” July 28, 2013.

“What is the Epistemological Status of Praxeology and the Action Axiom?,” July 27, 2013.

Hayek on Mises’ Apriorism

There is an obvious conflict between Mises and Hayek on the proper methodology for economics. In fact, the two Austrians had quite different, even conflicting, views on methodology, as follows:

(1) Mises adhered to aprioristic praxeology with deduction, and
(2) The methodology of Hayek, which rejected pure a priorism and admits a role for empirical evidence and is closer to Popper’s falsificationism.

It is now well known that Hayek disagreed with Mises on the role of empirical evidence. In a letter that Hayek wrote to Terence W. Hutchison dated 15 May, 1983, Hayek stated:

“I had never accepted Mises’ a priorism .... Certainly 1936 was the time when I first saw my distinctive approach in full clarity – but at the time I felt it that I was merely at last able to say clearly what I had always believed – and to explain gently to Mises why I could not ACCEPT HIS A PRIORISM” (quoted in Caldwell 2009: 323–324).

In fact, in 1937 Hayek had published an article called “Economics and Knowledge” where he criticised Mises’ apriorism, and appears to have moved closer to Popperian ideas on methodology in later years:

“I became one of the early readers [sc. of Karl Popper’s Logik der Forschung, 1934]. It had just come out a few weeks before …. And to me it was so satisfactory because it confirmed this certain view I had already formed due to an experience very similar to Karl Popper’s. Karl Popper is four or five years my junior; so we did not belong to the same academic generation. But our environment in which we formed our ideas was very much the same. It was very largely dominated by discussion, on the one hand, with Marxists and, on the other hand, with Freudians. Both these groups had one very irritating attribute: they insisted that their theories were, in principle, irrefutable. Their system was so built up that there was no possibility – I remember particularly one occasion when I suddenly began to see how ridiculous it all was when I was arguing with Freudians, and they explained, “Oh, well, this is due to the death instinct.” And I said, “But this can’t be due to the [death instinct].” “Oh, then this is due to the life instinct.” … Well, if you have these two alternatives, of course there’s no way of checking whether the theory is true or not. And that led me, already, to the understanding of what became Popper’s main systematic point: that the test of empirical science was that it could be refuted, and that any system which claimed that it was irrefutable was by definition not scientific. I was not a trained philosopher; I didn’t elaborate this. It was sufficient for me to have recognized this, but when I found this thing explicitly argued and justified in Popper, I just accepted the Popperian philosophy for spelling out what I had always felt. Ever since, I have been moving with Popper” (Nobel Prize-Winning Economist: Friedrich A. von Hayek, pp. 18–19).

One wonders what Hayek would have thought about the hordes of ignorant and “pop” Austrians on the internet today, claiming that the inferences of praxeology are irrefutable and praxeology has no need for empirical evidence (which is a distortion of what even Mises believed). If Hayek were alive today and gave an honest answer to this, he would have to class such vulgar Misesians as talking nonsense on a par with Marxism and Freudian psychology.

The recognition that the pure deductive method and apriorism are not valid methods for economics appears to have been accepted by modern Austrians like O’Driscoll and Rizzo. As John Pheby says

“… O’Driscoll and Rizzo, following Hayek, seem to envisage a moderate role for empirical tests in establishing whether or not particular interpretative theories are applicable to specific real-world situations …”, John Pheby, New directions in post-Keynesian economics, p. 65.

In support of this, Pheby cites O’Driscoll and Rizzo’s The Economics of Time and Ignorance (Oxford, UK, 1985), chapter 2.

It also surprises me how often vulgar supporters of Austrian economics on internet blogs haven’t the foggiest idea who O’Driscoll and Rizzo are, or their contributions to Austrian economics.

BIBLIOGRAPHY
Caldwell, B. 2009. “A Skirmish in the Popper Wars: Hutchison versus Caldwell on Hayek, Popper, Mises, and methodology,” Journal of Economic Methodology 16.3: 315–324.

Hayek, F. A. 1937. “Economics and Knowledge,” Economica n.s. 4.13: 33–54.

Nobel Prize-Winning Economist: Friedrich A. von Hayek. Interviewed by Earlene Graver, Axel Leijonhufvud, Leo Rosten, Jack High, James Buchanan, Robert Bork, Thomas Hazlett, Armen A. Alchian, Robert Chitester, Regents of the University of California, 1983.