The perennial topic of Austrian apriorism started to trend in certain quarters of the Internet once again (no names will be named), so I'm using this opportunity to restate my position on it, especially given the fact that there still seems to be a great deal of confusion surrounding even its more easily interpretable aspects.
My position, which I take to be the position of Ludwig von Mises, Carl Menger, and most of their classical predecessors who worked on economic methodology (including J. B. Say, Nassau Senior, and John Cairnes), is that pure economic theory is aprioristic, i.e., logically deducible from self-evident premises embedded in and necessary to make sense of the surrounding reality of empirical contingencies.
In other words, pure economic theory is a tool to interpret empirical reality and make it intelligible in terms of the categories of human action, not a replacement for the investigation of its empirically contingent features. It provides a set of non-trivial, necessarily true statements regarding the logical structure of human action – nothing more and nothing less. It cannot and does not attempt to prove its relevance to any particular case rooted in the contingencies of the empirical world. The business of establishing such relevance belongs to other analytical tools, mental faculties, and areas of knowledge. An entrepreneur is in the business of making forward-looking judgments of relevance. A historian is in the business of making backward-looking judgments of relevance. But they both have to accept the logical (a priori) correctness of economic theory (or, for that matter, mathematical theory) if their judgments of relevance are not to be arbitrary leaps in the dark.
An economic theorist can deduce, say, the law of demand, in a purely aprioristic fashion, since it follows from a sound reflection on the logical structure of human action. This, however, does not in any meaningful sense make him an intellectual oponent of, say, a behavioral economist. If the quantity demanded of a given good rises with its price, then the theorist knows that it is not the case that the law of demand has been invalidated, but that the ceteris paribus clause built into it has been violated - in other words, the good in question is not the same good any more (the relevant social facts have changed). Then it is the job of the behavioral economist to find out what caused the change in the relevant social facts, how stable it is likely to be, how reasonable it seems to extrapolate from it, etc. To put it differently, the job of the behavioral economist is to establish what factors are capable of violating the ceteris paribus clauses of economic laws. This, however, he can do only if he accepts that in the absence of any such intervening factors the law holds as a matter of logical necessity. This does not in any sense imply that the supposed economic law is an infinitely malleable, ad hoc mental construct, since the realization that every rule has its preconditions in no way invalidates the concept of rules, their utility in describing the empirical world, or their applicability to it.
In sum, the fact that aprioristic pure theory has to be empirically embedded in order to be empirically relevant does not make it empirical. Otherwise everything of practical value (including logic and mathematics) can be called empirical and the word becomes meaningless, which is not a position that even the most hard-core empiricist could reasonably hold. For an empiricist, the sole purpose of a priori theory is to define and explicate concepts. For an Austrian, the purpose of a priori theory is to interpret the facts and to impose logically necessary constraints on their investigations. None of this can be understood - and these are in fact crucial things to understand - by thinking of economic theory as scientifically useful only to the extent that it is "empirical" or "falsifiable". Mises understood this well. So should those who question his methodology.
Saturday, October 26, 2013
Friday, October 11, 2013
My talks on the Optimal Currency Area theory and its Austrian critique, and on Regime Uncertainty and Legal Entrepreneurship, both delivered at the Summer Austrian Seminar 2013 in Poland.