The Methodology of the Austrian School of Economics

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“We refer to the austrian school of economics nwe do not mean an institution located located in a building in vienna nor we mean the austrian neconomy instead. We mean group of persons who adhere nto a common school of economic thought founded by and developed mainly by austrians nowadays when we talk about economists regardless nof their origin who apply the methodology and theories of the austrian school in their nresearch. Then we call them austrian economists let us start by noting that the austrian school nof economics is not an ideology but a way of scientific thinking. The austrian theorists never thought in terms nof.

An ideological assumption that the free market is the best so we have to build a ntheory around it to integrate this ideology with the general body of science . Quite the contrary carl menger considered to be the founder nof austrian. School. Experienced.

The real market first hand by talking with entrepreneurs and nstock investors and this inspired him to develop his theory in a way that best suited nreality. Thanks to the studies of the austrian economists nwe. Now know that free prices private ownership of the means of production and free trade nallow for the most effective allocation of scarce resources. The reason austrian school may be accused nof being ideological is probably that it is often associated with libertarianism these two however are separate things the fact is evident by the existence of libertarian neconomists.

Who are not austrians and austrian economists. Who are not libertarians. Libertarianism is a political philosophy philosophy answers a different kind of questions nthan economics economics. As ludwig von mises.

Wrote does nnot ask which ends should people desire but what means they should employ to achieve their ndesired ends. According to mises and the other austrians neconomics stems from praxeology to put it simply praxeology is the science nof human action or the general theory of human action. Why do the austrians use praxeology to study neconomics. Because they consider economics.

A social science they maintain that social sciences should nnot rely on methods of natural sciences such as physics chemistry or biology because nnatural sciences deal with utterly different subjects of research. We call this position methodological dualism. You can find the entire argument in an essay. Nby mises entitled social science and natural science.

To which we provide a link on our nwebsite. Praxeology. Is an a priori deductive study. This means that in contrast to the natural nsciences its basic method of analysis is not an experiment but a verbal deduction nfrom evident observed or previously deduced assumptions if we are sure of our assumptions then we ncan call them axioms that is statements considered obvious.

The foundation of praxeology is the axiom nof human action. Meaning the contention that people act purposefully to achieve their goals of this mises. Writes n. Human action is purposeful behavior or we may say action is will put into operation.

Nand transformed into an agency is aiming at ends and goals is the ego s meaningful nresponse to stimuli and to the conditions of its environment is a person s conscious nadjustment to the state of the universe that determines his life mises regarded this statement an a priori nfact that is antecedent to any experience. According to murray n. Rothbard. However nthe axiom of human action is learned empirically through one s own experience of reality.

I leave it to your judgment to decide. Which nof them is right this dispute over the so called epistemological nstatus of the axiom of human action..


Does not change. The axiom itself both mises and rothbard deem. The axiom evident. Why should we take the axiom for a fact.

This is because we can reflect on our own nexperience as human beings. Each of us aims at some ends and chooses the nappropriate means to implement these ends. The exceptions are newborns who will start nto act later in their lives or people who are ill perhaps in a vegetative state. Which nprevents them from acting even refraining from action is an action to quote.

Mises action is not only doing nbut no. Less omitting to do what possibly could be done for example. A person who can choose to work ncan instead choose unemployment. We also consider this an action because the nperson making this decision has to have some reasons and as such applies appropriate means nto attain this end.

The desired end may be to have a lot of free ntime. Moreover. One trying to refute the axiom of nhuman action would only confirm its validity imagine a man trying to do this the refutation of the axiom itself becomes nhis end and he must choose appropriate means to attain it such as writing. An article or ngiving.

A lecture about it by choosing to act on this he only confirms nthe validity of the axiom now. It is worth saying what human action nis not unconditioned reflex for instance does not nqualify to be human action. When a doctor acts and hits you in the knee nwith a tiny rubber hammer you yourself do not act in the praxeological sense. When your nleg reacts with a kick because it is not a purposeful behavior on your part.

The reflex is beyond your control. The workings of your internal organs are also nnot actions. You have no sway over them we can put it this way the unconscious behavior ndoes. Not involve choice while deliberate action has to action should not be confused with work nor.

Neffort as well some actions. Require effort. Others do not when a military commander issues. A verbal ncommand.

He acts even though it takes little effort refraining from talking can also be an action nfor example. When you aim to show someone that you disprove of his actions. Praxeology also does not deal with psychology nof human behaviors. Our ends are simply treated as given and nthere is no need to explain their origin this separates praxeology from psychology praxeology focuses only on action as such so for praxeology.

The axiom of human action nis. The starting point mises explains. The further deductive process n. All the concepts and theorems of praxeology are implied in the category of human action.

The first task is to extract and to deduce nthem to expound their implications and to define the universal conditions of acting nas such having shown. What conditions are required nby..


Any action. One must go further and define of course in a categorial and formal nsense. The less general conditions required for special modes of acting. It would be possible to deal with this second ntask by delineating all thinkable conditions and deducing from them all inferences logically npermissible.

According to mises. There are three general nrequisite conditions to human action. First in order for a human to begin to act nthey must first feel some uneasiness second. They must imagine a more satisfactory state nthan.

The present one third. They must expect that their purposeful behavior can reduce ntheir uneasiness on the other hand when it comes to all nthinkable conditions. Mises. Adds.

That because science aims at allowing us a grasp of reality. Npraxeology. Mainly examines the conditions that occur in reality. Even when austrian economists conduct peculiar nthought experiments.

They always stress that the purpose is to isolate in their analysis. Na factor. That is obscured in the real world by a multitude of other factors they add additional realistic empirical statements nsuch as the fact that people differ from each other and are changeable in time that they ntreat free time as a valuable good. And that every action is a process that takes place nin time there are however two instances in which nmises allows for the use of praxeology while assuming conditions that do not exist and ndo not match present reality.

The first instance is an analysis of conditions nthat may arise in the future. For example praxeology. May explain the operation nof. A completely unregulated that is fully free market in the second instance mises.

Allows for the nanalysis of unreal conditions that could not ever exist in the future. Provided that such nan analysis can help understand reality. Suppose that we want to show the validity nof. The contention that goods are scarce to do that we can assume that this contention nis false and confront the result with reality delineating differences between these two nworlds all in all praxeology is an aprioristic science nnot.

Unlike. Mathematics and logic at the same time its contentions are empirical in spite of claiming in contrast with rothbard nthat. The axiom of human action is a priori mises acknowledged that other assumptions nof praxeology. Are empirical and that they help to shape and define its proper subject nof analysis experience thus helps economists to focus non the subject of their investigations.

But does not define their mode of operation and the mode of operation. The method of analysis nis a priori rothbard explains the process of verbal deduction nclearly furthermore since praxeology begins with a true axiom a all the propositions nthat can be deduced from this axiom must also be true for if a implies b. And a is true then b. Nmust also be true then he provides examples of such deduction nwell worth.

Quoting. Here action..


Implies that the individual s behavior. Nis purposive in short that it is directed toward goals furthermore. The fact of his action. Implies nthat.

He has consciously chosen certain means to reach his goals since he wishes to attain these goals they nmust be valuable to him accordingly. He must have values that govern his choices. And the second example n. The fact that people act necessarily implies that the means employed are scarce in relation nto.

The desired ends for if all means were not scarce. But superabundant the ends would nalready have been attained and there would be no need for action stated another way resources that are superabundant nno longer function as means because they are no longer objects of action why do the austrians stress verbal deduction nthat uses words instead of mathematical deduction that uses symbols murray rothbard and polish economist jakub nbo ydar wi niewski explain this extensively in articles that we link to on our website. We can say here that there are several reasons nfor the use of verbal deduction subjective value judgments cannot be represented nmeaningfully by use of simple numerical functions or symbols moreover economic values are incommensurable nand tend to change with the passage of time and lastly the mathematical representation nof. Logical deduction would only result in oversimplification and would impoverish its ncontent more on this in the aforementioned articles.

Why do the austrians think that economics nas science cannot be experimental mainly because in economics. There are no fixed nnumerical relations between values. It is also impossible to isolate specific nmarket factor that we may wish to examine while other things remain unchanged. There is no way to put society in laboratory nconditions in order to thoroughly recreate an experiment as mises writes.

If a statistician determines nthat a rise of 10 percent in the supply of potatoes in atlantis at a definite time was nfollowed by a fall of 8 percent in the price. He does not establish anything about what nhappened or may happen with a change in the supply of potatoes in another country or at nanother time. He has not measured the elasticity nof demand of potatoes. He has established a unique and individual nhistorical fact another recently celebrated example is the nintroduction of minimum wage in germany.

According to theory when the price of a good nrises other things being equal the demand for the good falls. In this case. The wage is the price so its nrise must mean a fall in employment now after a time since the introduction of nthe minimum wage. Some observers voiced their opinions that the economists were wrong because nbesides no fall in employment.

There actually was a fall in unemployment does such an empirical evidence prove nthe theory wrong of course not first of all during the very first day of nthe introduction of the minimum wage in germany. The assumption of other things being equal nbecame false because some factors indeed have changed there are numerous diverse factors that affect nemployment. It is not too hard to imagine for example nthat germany apart from the introduction of the minimum wage itself could add to the nmix. Some favorable conditions for business that attracted new investments or helped create nnew sole proprietorships over a year.

Hundreds of things could have nhappened that would impact employment in a positive or negative way. The theory remains valid and while we can nsay with certainty that increasing minimum wage reduces employment. We cannot say that nit is the only factor we can still say that if the minimum wage nhad not been introduced unemployment would fall even lower as jakub bo ydar wi niewski aptly puts it n the method of praxeology does not consist in comparing the state of the world before na given action occurred with the state of the world after it occurred. But in comparing nthe state of the world in which a given action occurred with the state of the world.

As it nwould have been had it not occurred. We call this counterfactual analysis. But going back to the theory. Empirical research nmust eventually lead us astray as it is impossible in the real economy to have all things be nequal.

It is only through the looking glass of economic ntheory that we can properly judge certain economic phenomena. Let s move to the next problem..


The austrian school of economics rests on nthe principle of methodological individualism meaning that it deals only with behaviors nof individuals this does not mean that the theory neglects nthe fact that human beings do not exist in a vacuum. Nobody challenges. The fact that people act namong other people. However any group whether large or small nconsists of individuals to be able to properly explain the actions nof.

A group of people we should focus on the particular individuals who act within the ngroup as rothbard puts it praxeology as well nas. The sound aspects of the other social sciences. Rests on methodological individualism on nthe fact that only individuals feel value think and act mises in turn writes those who want nto start the study of human action from the collective units encounter. An insurmountable nobstacle in the fact that an individual at the same time can belong and with the nexception of the most primitive tribesmen really belongs to various collective entities.

The problems raised by the multiplicity of ncoexisting social units and their mutual antagonisms can be solved only by methodological individualism austrians also apply the principle of methodological nsingularism meaning that they focus on concrete single actions. According to mises by analyzing the world nonly by use of wholes and universals that is when we consider only the whole of mankind nthe nation or entire categories of needs and goods. We arrive at paradoxical conclusions for instance. It is impossible to resolve.

Nthe diamond. Water. Paradox by use of an overgeneralized analysis. Let us see how is it that gold and diamonds nare.

More expensive than iron and water water and iron are a lot more useful. So they nshould be more valuable mises explains that a particular person never nchooses between gold and iron in general. But sifts only through concrete amounts of ngold and iron for a detailed discussion of the diamond water nparadox look up our the value of things video. The last thing.

We will mention here is methodological nsubjectivism praxeology and therefore economics does nnot judge human goals praxeology does not offer value judgments nabout whether one s aim is good or bad it does not set objectively good ends for nus to realize praxeology regards subjective ends as given it only deals with the determination of whether nhuman beings use proper means to achieve their own individual ends. In other words austrians realize that people nare diverse creatures and their goals can be and are diverse consequently ends should be interpreted from nthe point of view of one desiring them that is subjectively. According to the austrians not only are the nends subjective. But the costs profits or values are as well only the individual who makes a choice knows nthe value he assigns to his ends.

And what he is willing to give up to achieve these nends. Only the one who participates in an exchange ncan possibly judge how much it will satisfy his needs this cannot be objectively measured methodological subjectivism can be summed nup with a quote from a book. The meaning of the market process by israel. Kirzner n.

Methodological subjectivism is a recognition that the actions of individuals are to be nunderstood. Only by reference to the knowledge beliefs perception and expectations of these nindividuals we invite you to visit our website econclipscom. Nthat provides further sources expounding the topic we would like to thank the economists from nthe polish mises institute who devoted their time and verified the correctness of the script nto this video and especially thank you the viewer for nany contributions that allow us to make our videos. If you want to support this project you can.

Ndo it with paypal bitcoin or by becoming our patron on patreoncom. ” ..

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