See Disclaimer Below.

Posts Tagged ‘Praxeology’

Hayek, Statistics, and Trade-Cycle Theory

In Academia, Austrian Economics, Books, Economics, Essays, Humane Economy, Libertarianism, Philosophy, Western Philosophy on February 11, 2015 at 8:45 am

Allen 2

This essay first appeared here as a Mises Emerging Scholar article for the Ludwig von Mises Institute Canada.

Austrian economics is often caricatured and criticized because of its approach, or deliberate lack of an approach, to mathematical models, multivariable calculus, and econometrics. Attacks are leveled against Austrians such as Mises, Rothbard, and Kirzner for their failure or refusal to avail themselves of applied empirical research in their scholarship. The Austrian methodology most frequently targeted is praxeology.

It is not the purpose of this short article to refute these attacks or to explore their errors and merits. That has been done ably by others (see, for example, the series of debate-essays available here, here, here, and here). Nor does this article attempt to stand up for the deductive reasoning of praxeology or to defend its claims about a priori truths, a task better suited for a lengthy work of scholarship, not a short article. This piece instead asks one simple question: does Hayek’s early work on trade-cycle theory complicate stereotypes about the methods of Austrian economics or clarify the manner in which Austrians can and do approach economic theory? The answer, of course, is yes.

Hayek proposed that the purpose and function of trade cycle theory was strictly limited: it was “to explain how certain prices are determined” and “to state their influence on production and consumption.” Expanding trade cycle theory beyond that purpose and function was, he believed, fallacious. “Any attempt to forecast the trend of economic development,” he claimed, “or to influence it by measures based on an examination of existing conditions, must presuppose certain quite definite conceptions as to the necessary course of economic phenomena.” But economic development — and the trade cycle in particular — is too important and complex to be guided by mere suppositions regarding matters about which there is much disagreement.

That is precisely what was happening in the 1920s when statistical designs and methods were growing in popularity and replacing general equilibrium theory, away from which Hayek himself moved later in his career. Economists at this time were beginning to treat statistics as conditions or proxies for theory (and even as theories unto themselves) rather than as mechanisms for testing and verifying established theories such as basic deductive inference or feature-by-feature comparison of the natural rate of interest (i.e., “equilibrium”) with the existing market rate.

According to Hayek, empirical research either affirms or discredits given methodologies but does not introduce new theories to explain fluctuating trade cycles. Amassing statistics, he maintained, is not the same as adducing or formulating economic laws. Statistics are nevertheless useful because, he explains, “there can be no doubt that trade cycle theory can only gain full practical importance through exact measurement of the actual course of the phenomena it describes.” Statistics, however, will not cultivate theoretical excellence of a kind that should direct trade-cycle theory or the policies that flow from it.

Statistics are useful in the negative sense: they disprove and discredit theories rather than affirm or prove them. They are corroborative but not ultimate guides; they are useful only to the extent that they enable us to make accurate predictions about future conditions, e.g., “to infer from the comparative movements of certain prices and quantities an imminent change in the direction of those movements.” Once statistics are gathered, a theory must be extracted from them–-they create inferences to be studied and aggregated, not comprehensive theories to be canonized. That is why Hayek declares that the “value of statistical research depends primarily upon the soundness of the theoretical conceptions on which it is based.” Statistics can be made to prove different points, but only a theoretically sound approach to classifying and elucidating statistics will bring about reliable forecasts.

Correct business forecasting depends on correct theorizing; therefore, Hayek propounds, we must labor to attain correct theories, never settling with what we perceive to be complete knowledge. Traditional equilibrium theory is not enough for him because it does not adequately account for money, a commodity or medium of exchange whose very status as such depends on its wide use and general acceptance on the market, not to mention its ability to reflect the subjective values of producers and consumers. The production of money and the often arbitrary increase in its supply by banks distort the natural interest rate and call into question the usefulness of equilibrium theory in a money economy.

Hayek demonstrates in his early work on the trade cycle that statistics and theories can be interactive and participatory so long as the former isn’t treated as a substitute for the latter. Statistics alone aren’t pure math, of course, and the creation of economic simulacra in the form of models and diagrams can lead to the type of scientism — the privileging of data over theory — that Hayek decries. Math is a term for what is done with data already gathered; it refers to many topics of study but in this context to the deductive and systematic study of facts and figures and their observable patterns to arrive at true concepts and accurate measurements regarding the concrete conditions of our phenomenal world. So understood, math is not the ultima ratio but an indispensable tool, not an end but a means to an end. Only from this premise does Hayek’s trade-cycle theory become fully comprehensible, and although his paradigms of trade-cycle theory and equilibrium evolved over time, his foundational approach to the role of statistics and theories remained crucial to his thinking.

_____

Note: Quotations come from F.A. Hayek, Prices and Production and Other Works: F.A. Hayek on Money, the Business Cycle, and the Gold Standard. Edited with an Introduction by Joseph T. Salerno. Auburn, Alabama: Ludwig von Mises Institute, 2008.

Advertisements

Allen Mendenhall Interviews J. Neil Schulman, Prometheus Award–Winning Author of Alongside Night

In Artist, Arts & Letters, Austrian Economics, Creative Writing, Creativity, Economics, Fiction, Film, Humanities, Imagination, Libertarianism, Literary Theory & Criticism, Literature, News and Current Events, Novels, Philosophy, Screenwriting, Television, Television Writing, Writing on January 17, 2012 at 9:00 am

J. Neil Schulman

J. Neil Schulman is a novelist, actor, filmmaker, journalist, composer, and publisher.  Among his many books are Alongside Night and The Rainbow Cadenza, both of which won the Prometheus Award.  Visit his website at http://jneilschulman.rationalreview.com/.

 

The following interview originally appeared here at Prometheus Unbound: A Libertarian Review of Fiction and Literature.

AM:  Right off the bat, it strikes me that I don’t know what to call you.  Will Neil work?

JNS:  Sure. It’s J. Neil Schulman in credits, and Neil in person.

AM:  Anyway, thank you for doing this interview, Neil.  You’ve had a fascinating and unique career.  You’ve written novels, short fiction, nonfiction, screenplays, and other works.  Which of your works is your favorite and why?

JNS:  Every artist gets asked this question sooner or later. I asked it of Robert A. Heinlein when I interviewed him in 1973, and his answer was, “The latest one I’ve been working on.”

I’ve only completed one movie so far — Lady Magdalene’s — so it’s a Hobson’s Choice on that one. Ask me again when I’ve made two! But a lot of people also seem to like the script I wrote for The Twilight Zone, “Profile in Silver.”

I’ve written three novels. My first, Alongside Night [editor’s note: free in pdf], seems to be my most accessible and popular. I consider my second novel, The Rainbow Cadenza, to be my most layered, literary, and richest in explicit philosophy. My third novel, Escape from Heaven, is my favorite. It may not be as timely as my first novel or literary as my second novel, but it’s the one that’s closest to my heart…both the funniest thing I’ve ever written, and the one which is most deceptively simple. It appears to be a lightweight piece of comic fantasy, but it’s full of ideas that if examined more closely turn both traditional theology and rationalist philosophy on their heads.

Short stories? I’ll pick a few: “The Musician,” “Day of Atonement,” and “When Freemen Shall Stand” — all in my collection Nasty. Brutish, and Short Stories — and my latest short story, “The Laughskeller,” published on my blog, J. Neil Schulman @ Rational Review.

AM:  Your worldview is, in a word, libertarian.  Why is that?  How does libertarianism come across in your writing?

JNS:  In my nonfiction essays it comes across explicitly. In fiction, drama, and comedy, I try to examine libertarian themes without preaching. I was probably most subtle doing this in The Rainbow Cadenza. The utilitarian politics advocated by the chief villain, Burke Filcher, is so self-consistent that a lot of readers have thought this character speaks for the author. In fact, I wrote the novel to attack utilitarianism as a nullification of the natural individual rights I believe in. The novel reduces utilitarianism to absurdity — it’s a formal satire of it.

Alongside Night is less subtle, though I’m probably more successful in the new movie script than the 1970s novel when it comes to letting the audience make up its own mind. I have learned some refinements of my craft in the last three decades.

Alongside Night by J. Neil SchulmanAM:  I recently noticed that you commented on a post at the Austrian Economics and Literature blog edited by my good friend Troy Camplin.  Tell me about the influence that Austrian economics has had on you.

JNS:  I would say that Austrian economics — and more fundamentally, the analytical tools of praxeology and games theory — have been fundamental to my work for my entire professional career. They’re not the only tools in my kit, but they get shopworn as much as any of them. Austrian economics is most explicit in Alongside Night, projecting the social and political consequences of fiat money hyperinflation — but I used games theory in plotting “Profile in Silver” and applied praxeology to the afterlife in Escape from Heaven. Read the rest of this entry »

Konrad Graf on Action-Based Jurisprudence

In Austrian Economics, Humane Economy, Humanities, Jurisprudence, Law, Liberalism, Libertarianism, News Release, Politics on August 14, 2011 at 7:54 pm

Allen Mendenhall

Konrad Graf, who, with me, contributes to Prometheus Unbound: A Libertarian Review of Fiction and Literature, has published the following essay in Libertarian Papers“Action-Based Jurisprudence: Praxeological Legal Theory in Relation to Economic Theory, Ethics, and Legal Practice.”  Here is the abstract to the piece:

Action-based legal theory is a discrete branch of praxeology and the basis of an emerging school of jurisprudence related to, but distinct from, natural law. Legal theory and economic theory share content that is part of praxeology itself: the action axiom, the a priori of argumentation, universalizable property theory, and counterfactual-deductive methodology. Praxeological property-norm justification is separate from the strictly ethical “ought” question of selecting ends in an action context. Examples of action-based jurisprudence are found in existing “Austro-libertarian” literature. Legal theory and legal practice must remain distinct and work closely together if justice is to be found in real cases. Legal theorizing was shaped in religious ethical contexts, which contributed to confused field boundaries between law and ethics. The carrot and stick influence of rulers on theorists has distorted conventional economics and jurisprudence in particular directions over the course of centuries. An action-based approach is relatively immune to such sources of distortion in its methods and conclusions, but has tended historically to be marginalized from conventional institutions for this same reason.

This piece is striking for a number of reasons, not least of which is the way it came about.  As the Mises Economics Blog explains,

This is an interesting, provocative analysis of libertarian theory that highlights the strength of the Mises Institute’s approach and model of openness. First, this piece was inspired by the author’s participating in a Mises Academy course.

Second, the author is not a professional scholar or academic. In days past such authors–who are often the source of new ideas–would be shut out by credentialism and the iron grip certain institutions had over the few avenues of publication. The open model of the Mises Institute’s Libertarian Papers–rigorously double-blind peer-reviewed but open to private scholars as well as academics, as its focus is on ideas–breaks free of this hidebound model.

Third, the article is 75 pages long, much longer than many journals can accept. But this is no problem for the Libertarian Papers model as it is online, not centered on paper.

To sum up, this provocative piece was stimulated by the Mises Institute’s being on the forefront of technology (Mises Academy), not to mention the gargantuan volume of free, online resource such authors are able to draw on (Mises.org), and then was offered a publishing platform (Libertarian Papers) despite its length and the author’s private, “non-credentialed” status. In my view, this is all to the good and a testament to the heroic work done by the Mises Institute.

Libertarian Papers is edited by Stephan Kinsella.  Visit Kinsella’s website here.  Visit Mises Academy (which inspired Graf’s article) by clicking here.

%d bloggers like this: