Where mainstream economics fails: Understanding Praxeology and Austrian Economics

There are many schools of Economics, but simply put they can broadly be put into two camps. The Austrian school, and then all the others.

So just what is the Austrian school and why is it important today?

Thankfully the Austrian school is blessed with some of the finest public speakers there are, and who can explain something that is traditionally seen as ‘complicated’ in a very easy to understandable fashion – and Walter Block is one of the best there is.

So here we present a perfect talk given by Block for people who want to get a good introduction into just what Austrian economics is all about.

In a nut-shell the idea behind the Austrian school can be summed up in one word - Praxeology. Now, most people have never come across this word, in fact it is used so little today that it isn’t even recognized when written in Pages on a mac – in fact the spell-checker gives the only option as ‘Proctology’.

It’s rather a sorry state of affairs when a word is more recognized and used that is about examining your rear-end over a word that is simply describing something that all humans do practically every second of the day – namely that ‘humans act’.

The dictionary definition of Praxeology is:

“The study of human action”

Whilst this concept might seem absurdly simple, even trivial, ie that humans ‘act’, it is in fact at the heart of what separates the Austrian school from all the others. And it explains why one of the greatest economic books ever written, by one of the greatest economists never talked about today, Ludwig Vvon Mises, is simply titled “Human Action” (which can be downloaded for free here).

As Walter Block puts it at the start of his talk:

Praxeology is the logic of economics, if i trade you my tie for your pen, it must mean that i value your pen more than my tie, and you value my tie more than your pen. Now it might not be that you really give a rat’s rear-end about my tie, but you think i’ll give you an ‘A’ if you make the trade [Walter Block is an Econ professor], we don’t know what is on our minds, and who knows why i want your lousy pen. But all we know is that if we’re both voluntarily willing to make the trade we each value in some sense what we’re receiving more than we are giving.

Now is this ‘testable’? Can you go out and make a test about it? Do it a thousand times and see? No. If you understand the English language you understand it, this is sort of obvious, its undeniable. But the mainstream economists have physics envy, sort of like penis envy, and the way they see economics is that it is sort of like an empirical science. What you do is make a hypothesis, and you test the hypothesis and if the hypothesis comes flying through then you provisionally accept it, it’s just a hypothesis and it could be over turned by the next experiment, as it is in the case of the physical sciences. But economics is very different, we don’t test anything, we illustrate things like with the tie and the pen, but you can’t test it. It’s not falsifiable .

Another example is that humans act. Well try denying that and you are engaging in a human act. So it’s sort of impossible to deny, it’s not falsifiable.

Well worth finding yourself an hour or so over this weekend to get your head round these concepts:

When will we start to see economics more in terms of philosophy rather than a hard science? It is only when economics is framed in that philosophical sense that it actually comes alive and makes sense.

And after all lets not forget physics suffers from philosophy envy.

Related posts:

1. A useful nod for the Austrian school of economics?
2. Thoughts on the Greek crisis and the politicization of economics
3. (Ron) Paul V Paul (Krugman) – Austrian V Keynesian
4. Another day another example of gold entering the mainstream
5. Mainstream Media Agree: Crack Up Boom in Food

Link to this article: : http://www.goldmadesimplenews.com/analysis/where-mainstream-economics-fails-understanding-praxeology-and-austrian-economics-2-7599/

Posted by Thomas Paterson on Aug 10 2012. Filed under Analysis. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.