u-Bob

Human are what they are. You can't change that.

And as I've tried to point out several times: Gov is made up out of humans, not all knowing angels. Governments are made up out of humans who make mistakes just alike any other human. Governments are made up out of humans who are greedy just like any other human.

The difference between gov intervention and the free market is that, in the case of gov intervention, the mistakes made by the people who make up the gov affect the whole population.

Here we've arrived at an essential difference between the Austrian school and 'mainstream' economics. Most interventionists base their theories on empiric research. They consider economics to be an empirical science.

According to an empiricist it is impossible to know something. (Even though they pretend they do). An empiricist formulates hypotheses and then goes on to test and retest those hypotheses. At the end of his research the empiricist concludes that his hypothesis was confirmed in for example 9 out of 10 tests or 10 out of 10 tests etc.

So in essence what an empirical economist does is to formulate hypotheses and then try and measure as much about the economy as possible to test if this data confirms or denies his hypotheses.

He then goes on to construct nice models he can use to predict how his 'tinkering' with the economy would turn out.

The Austrian school totally rejects this method. Why?
- It is possible to know something. If I state that all objects that are completely blue can't at the same time be completely yellow then you know this to be true. It's simple logic.
- When dealing with the economy, you are dealing with human individuals who are all different.

The empirical scientific method is useful when applied to the natural sciences like physics or chemistry. It is perfectly possible to isolate a chemical element and then for example heat up a certain amount of that element and measure at what temperature it burns or melts or vaporizes... You can conduct controlled experiments because you can conduct your test on a certain amount of that element and then compare your results to another amount of that same element.

You can't do this with the economy. You can't just put a 1000 people in a box and tell them "go play free market" and then put the same 1000 people in another box and say "go play central planned economy" and then compare the results. You are dealing here with individuals who are all different, who all respond to their environment differently. The mere act of observing them will already alter their behavior.

(btw: Funny thing is that events in history that could be considered as coming even close to a controlled experiment (for example: North vs South Korea. Similar genetic background, similar geography, different amounts of gov intervention.) never favor central planning)

According to the Austrian School you can't use historical events to prove your theories or hypotheses are correct. You can merely analyze events and use them to illustrate certain principles.

Then how does the Austrian School approach economics?

The Austrian school uses an axiomatic-deductive method. This means that you start with an axiom, something that you know to be true and you use a known method (logic) to deduct things from that axiom.

If your starting point is true and you didn't make any logical errors deducting then what you deducted from that axiom is also true.

Mises used the axiom of human action as his starting point.

All humans act. (To act as defined as "to act with a purpose". Getting up in the morning would be acting. Opening a bottle of beer would be acting. etc).
It is impossible to disprove that people act because by trying to do so you would be acting therefor disproving what you set out to do.

Let's take an example with 2 individuals: A and B. A and B both have all kinds of goals.
A wants to own a ball.
B wants to own a ball.

A wants to own a yellow ball.
B wants to own a red ball.

A owns a red ball.
B owns a yellow ball.

They both have 2 goals. 1 of their goals (owning a ball) has already been accomplished.

Logic dictates that they both can achieve a more satisfying state by trading their balls. If A gives his red ball to B in exchange for B's yellow ball then both of them will have accomplished 2 of their goals instead of 1 of their goals.

If you prevent a and B from trading than you prevent them from achieving a more satisfying state of affairs.

etc etc

Using pure logic the Austrian economists are able to deduct and prove pricing theories, the law of supply and demand, the law of comparative advantage etc. and the fact that a pure free market is the most optimal system.


It is an example of how gov intervention prevents a problem from occurring (a couple of irresponsible banks going bankrupt) by doing something that causes bigger problems down the road. They keep repeating that same process and thus increase the severity of the problem.

That is essentially what the gov has been doing. Ignoring the fact that some corporations, banks etc actually did things that undermined their stability. In a free market the irresponsible go bankrupt. Thanks to gov intervention the irresponsible get bailed out at the expense of those who acted responsibly.

[QUOTE]Or you could say, we wouldn't have the technology today if we didn't have the gov.[QUOTE]
see empirical vs axiomatic-deductive.


Smith used his invisible hand' as a metaphor. He said that if no one intervenes you get the best possible outcome, as if some all knowing entity intervened.

Why have those corps been able to do what they do? Because of gov intervention. Big corporation hate the free market. John D Rockefeller considered "competition a sin". that's why he liked gov intervention because that way they were able to block small competitors that produced better products at lower prices.

So do you really expect those greedy experts who a couple of minutes ago still used to work for a big corp and who will most likely be going back to working for big corps in the same industry to do a good job at protecting the public against the greed of those big corps?


The difference between an Austrian and a monetarist/Keynesian/neoliberal/interventionist is that the Austrian accepts that it is impossible to know everything about the economy. You can know certain things, you can deduct certain laws. Those laws can help you understand things, but you'll never be able to understand the whole economy. The economy is organic. It constantly grows, changes, moves,... The interventionist thinks he can "master economics in college". The interventionists thinks he can create neat models and predict the outcome of his actions.