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David Steele Debates Praxeology

EconomicsPosted by Lee Waaks Fri, March 07, 2014 08:19:28
As Libertarian Alliance member and blog contributor David Ramsay Steele is one of my favorite intellectuals/writers, I was excited to learn of an online debate on praxeology and Misesian apriorism (an economic methodology developed by Ludwig von Mises) between him and Robert Taylor, director of Praxeology.tv (watch the debate here: http://iloapp.la-articles.org.uk/blog/blog?Home&post=14).

Prior to reading Steele's book From Marx to Mises (1992), I assumed praxeology was correct. To tell the truth, I didn't really think about it much; it just seemed so plausible. For example, Mises' argument that economic calculation is essential for a flourishing economy is still utterly convincing to me. And because it was so convincing at the time -- and involved virtually no empirical data -- it led me to believe that economics could be done from an armchair. Mises did it right before my very eyes! However, after reading Steele's book many years ago, in particular the brief passages devoted to apriorism, I became very confused about this topic and have remained so ever since; hence, my enthusiasm about the debate.

Having now watched the debate (I think Steele won easily), I am fairly convinced that economics is an empirical science, as opposed to a purely deductive one, as Taylor and his fellow Misesians claim (although I do have a few questions for Steele -- see below). However, if there is a case to be made for apriorism, I don't think it is going to be made by Taylor, who seems quite out of his depth. But in his defense, he is not an economist and I am thankful to him for enticing Steele to join him for a good-natured, debate -- and for creating/posting the video. It was helpful to me and may be helpful to many others who are confused about these issues.

I believe that many libertarians who are influenced by Mises (and his student/acolyte Murray Rothbard) are very attracted to the idea that economic science, as claimed by Mises, offers "apodictic" truths. What better way to defeat socialists of all stripes, or those who deny the existence of economic laws, than with the sword of apodictic truth? (This is similar to the way the non-aggression principle [NAP] is used by libertarians as another (alleged) "knock-down" argument in their anti-socialist arsenal). Therefore, if praxeology proves that economic laws exist, and that all interventions are doomed to fail, all libertarians need ever do is hammer home the truths of praxeology and socialists will be forced to surrender. Those who refuse to assent to the truth of praxeology are simply obtuse or dogmatic. Undoubtedly, this why the possibility of apodictic economic laws was, and still remains, attractive to me.

Steele agrees with Taylor that you must first have a theory to know what to test, but argues this is the beginning, not the end, of economic science, because your theories must be tested to be sure your assumptions are not falsified by the data. Steele uses the example of minimum wage laws to good effect. Many economists believe these laws cause unemployment due to the fact that increased labor costs lead to a decreased demand for labor. This follows from the fact that employers are typically very cost conscious and will only employ their capital in a business enterprise if the return is at least equal to, or better than, other profit opportunities. Although these theories are derived from various intuitions ("quasi-praxeological" [FMTM]) and/or prior empirical tests/observations, Steele argues our theories should still be tested due to the possibility of error in our initial reasoning. Hence, economics is an empirical science, albeit one guided by praxeological-type reasoning.

Contrary to empirical economists, Misesians argue that we can derive economic axioms with the use of introspection and/or empirical observations about human nature (in the case of minimum wages, employers, ceteris paribus, prefer more wealth to less; therefore, they purchase fewer units of labor), so there is no need to test the theory if the economic logic is correct. However, if I understand Steele correctly, the aprioristic methodology is false, not because praxeology does not contain important truths (quite the contrary: see FMTM); or is not a useful compass for economic inquiry, but because economic policies and predictions cannot be deduced from millions of daily interactions between ignorant, often erratic, human beings. How far apart our theories are from the real world is what empirical testing can help to determine.

My guess is that Misesians are reluctant to abandon praxeology, not just because it allegedly refutes those who claim there are no economic laws, but because it really does appear to be amazingly fruitful for economic analysis without the use of difficult econometrics or empirical data, which can be unreliable and/or hard to come by. This view may be due to the fact that, as Robert Taylor says during the debate, Misesians believe -- if we are rigorous enough -- a "logical chain of deduction" can be formed by utilizing various praxeological axioms -- and when combined with various bits of empirical data about the past or our current economic landscape -- we can arrive at an apodictic conclusion about e.g. the cause of the trade cycle. But, if I'm still following Steele correctly, this belief is false because there are only a few axioms, and given that each one is nearly barren of any empirical content, they do not lend themselves to this type of extrapolation. Again, it doesn't mean praxeology isn't useful; it's just shouldn't be your only tool in your economic toolkit.

My questions for Steele (or anyone) are:

1. During the debate Steele argues that Mises' aprioristic methodology undercut his persuasiveness during the economic calculation debate with socialists in the 1920s/30s. However, if the empirical approach is allegedly more persuasive, is this argument falsified by the fact that many economists, including several Nobel award winners, support minimum wage laws in spite of the empirical data offered by those who oppose it? Also, if Mises had adopted an empirical approach, how might he have used empirical data (and what kind?) to show that socialism was unworkable?

2. As economist and apriorist Walter Block pointed out, when Card/Krueger famously challenged the view that minimum wage laws cause unemployment, many economists rushed to find the empirical errors rather than simply surrender to their conclusions. Was he wrong to argue that for many economists, praxeology is at least their tacit methodological approach?

3. If economics is an empirical science, is it reasonable to speak of "economic laws"?

4. In the case of empirical testing of minimum wage laws, how would economists know when they had controlled for enough variables or what length of time is appropriate to test for?

5. In order to test, are economists really just "smuggling" apriorism in the back door, so to speak, in order to know what data to include/exclude?



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