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A Simple Attempt to Clear Up Some Confusions About the “Austrian” Perspective and Economic SCIENCE

Summary:
A lot of folks hold, what I believe, to be erroneous views about the Austrian School of Economics, and the status of economics as a science.  My own position is that economics has the same ontological status as physics in terms of being a science, but has different epistemological procedures.  In other words, there should be no doubt that economics is a science, but the practice of that science is different from the natural science practice due to three things: (a) we are what we study [knowledge from the inside], (b) economics is the study of complex phenomena, and (c) even physics isn't practices the way naive philosophy of science depicts [think Duhem/Quine] and is better captured by the depictions found in growth of knowledge literature such as Michael Polanyi. So Friedman's

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A lot of folks hold, what I believe, to be erroneous views about the Austrian School of Economics, and the status of economics as a science.  My own position is that economics has the same ontological status as physics in terms of being a science, but has different epistemological procedures.  In other words, there should be no doubt that economics is a science, but the practice of that science is different from the natural science practice due to three things: (a) we are what we study [knowledge from the inside], (b) economics is the study of complex phenomena, and (c) even physics isn't practices the way naive philosophy of science depicts [think Duhem/Quine] and is better captured by the depictions found in growth of knowledge literature such as Michael Polanyi.

So Friedman's "Essay in Positive Economics" just doesn't cut it for me, and never has from the time I was an undergraduate.  [Important historical accident, I had a philosophy professor at Grove City College introduce us to Michael Polanyi's small books -- Science, Faith and Society and The Study of Man -- prior to me even getting excited about economics.] But I believe strongly in science of economics and also progress in that science.  I am, of course, influenced by Menger, Mises and Hayek, but also Bohm-Bawerk and Machlup, in my understanding of that nature and significance of the "Austrian" perspective on economics as a science.  As Machlup once put it, what if matter could talk, now what would that scientific endeavor look like?

Coming out of the grand debate of the 19th century over methods, one can divide the discipline of ECONOMICS into three distinct areas of research: economic theory, economic history, and economic sociology.  And, each area has its own standards of critical assessment.  This is where the cause for confusion, I believe, enters into the discourse.  Many of the statements that Austrians make about "testing" and "empirical analysis" are related to the realm of economic theory, though they are read as making blanket claims about ECONOMICS.   They are not.  Theory can indeed be tested, for its logical coherence and for its relevance to the situation under investigations.  And, theories can be rejected due to incoherence and irrelevance.

But it is vital to understand that from the Austrian perspective, the purpose of theory is to aid in the doing of history.  Empirical analysis is not undervalued in the Austrian school, it is the purpose of the theoretical efforts.  And, to refine the theory into a working framework for productive use in empirical investigations one must move from the realm of pure theory into the realm of applied theory -- or what was dubbed economic sociology by Max Weber and then Joseph Schumpeter.  Economic sociology recognizes that economic life is played out embedded in various institutional context, and that context matters, so the theorist must transform the logic of choice into situational logic by incorporating law, politics, religion, etc. into their analysis.  The economic process must be studied as exchange and the institutions within which exchange relations are formed, function, and conclude.  This is how progress is made in ECONOMIC SCIENCE.  Not necessarily by refinements in the tools -- though nothing I am arguing precludes refinement in tools as being extremely valuable to our enterprise, but they must be remembered as tools and not the purpose of the exercise. Progress will be made through a better integration of economic theory with social institutions to forge a framework that yields richer and more meaningful depictions of the human condition as experienced through historical time.  We get a deeper understanding of the history of human societies and the conditions conducive to human flourishing and those that fall short.  From Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations to Daron Acemoglu and James Robinson's Why Nations Fail, this is how our discipline marches forward as a scientific enterprise.

It is for this reason, as well as others, that I find the integration of the Austrian School of Economics, the Virginia School of Political Economy, and the Bloomington School of Institutional Analysis such a productive endeavor in contemporary economics, political economy, and social philosophy.

Better Together

Peter Boettke
Peter Joseph Boettke (January 3, 1960) is an American economist of the Austrian School. He is currently a University Professor of Economics and Philosophy at George Mason University; the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU.

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