Debunking Seven Common Criticisms of Austrian Economics
Let’s clear up some misconceptions about Austrian economics.
If people want to dismiss this school of thought, which many seem inclined to do for political (not theoretical) reasons, at least they should do so based on facts and knowledge, not on falsehoods. Here are corrections:
“Austrian economics is not empirical.”
Empirical studies (“history”) are important in Austrian economics and have larger scope than in mainstream economics. Mises worked with applied research in the Vienna Chamber of Commerce and founded the Austrian Institute for Business Cycle Research, for which he appointed Hayek as the first director. This is where Hayek did much of the business cycle research that later won him the Nobel Prize. What critics fail to understand is Austrians’ narrower definition of theory, which is not a collection of hypotheses but true, general statements. Austrian economic *theory* cannot be developed using incomplete and imprecise measurements of observations. But this does not mean Austrians cannot or will not do empirical research.
“Austrian economic theory is not related to the real world.”
Austrians, following Mises, derive true statements from the nature of human action: that it is purposeful behavior, i.e., actors aim to achieve something they consider both attainable and valuable using the means they recognize as appropriate and effective. Action always takes place in the real world and it is through our real-world experience that we recognize that the nature of action is in fact true. What is logically derived from a true statement about action cannot magically lose its empirical relevance just because it is derived logically rather than “letting the data speak.” Austrians hold the typical
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