The Long FAQ on Liberalism
A Critique of the Austrian School of Economics:


Perhaps the defining difference between mainstream and Austrian economists lies in their opposing philosophies towards learning truth.

Mainstream scientists use a well-developed process called the scientific method. This method employs both data and theory. "Data" includes facts, evidence and statistics. "Theory" is the attempt to describe general laws, principles and causes and effects found in the data. Both form a cycle, as data goes into the formulation of theory, whose conclusions then engender more data collection in an attempt to confirm, refute or develop yet more theories. The accuracy of this process is verified by experimentation or prediction. Scientists believe they are on the right path when both theory and data agree; when they disagree, they know something is wrong. It could be the theory is wrong, or the data is badly collected or interpreted.

Austrians accept this method in principle, but argue that it is more appropriate for hard sciences like physics or chemistry, not soft sciences like sociology or economics. The problem is that humans, unlike electrons, have freedom of choice. They are therefore vastly more unpredictable, even if placed in the same situation twice. Within economics, Austrians favor a method called "apriorism." A priori knowledge is logic, or knowledge that exists in a person's mind prior to, and independent of, outer world experience. For example, the statement "two plus two equals four" is true whether or not a person goes out into his garden and verifies this by counting two pairs of tomatoes. What this means is that Austrians reject the attempt to learn economic laws through experiment or real world observation. The only true economic laws are those based on first principles, namely, logic.

As Hayek wrote, economic theories can "never be verified or falsified by reference to facts. All that we can and must verify is the presence of our assumptions in the particular case." (1)

So the mainstream approach is inductive, and the Austrian approach is deductive. The first draws generalizations from the data, the second applies preconceived generalizations to the data. A completely deductive approach is pre-scientific, however, which is why Austrians cannot legitimately claim to use a scientific method. Deduction does occur in science, but the generalizations are primarily based on other data, not a priori assumptions.

This is not to say that Austrians do not refer to real-world events and data in their writings. They just don't do it in the usual scientific way. Here is Austrian economist Ken Gaillot, Jr., describing their use of data: In other words, Austrians get to critique the real world, but the real world is prevented from informing their theories. Even their predictions are "qualitative," not "quantitative" -- meaning they are free to call the government "bad," without being held down to the statistics that would verify this claim.

The Austrian approach to philosophy is a very old one: Rationalism. You have to go back to the 17th and 18th centuries to find when it was last considered a serious philosophical movement. It was widely abandoned after its inadequacies were laid bare by other schools of philosophy: Empiricism, Positivism, and most famously by Immanuel Kant's Critique of Pure Reason. Philosophy has progressed tremendously since Rationalism; the Austrian approach is a relic of history.

The problem with rationalism is that it makes the search for truth a game without rules. Rationalists are free to theorize anything they want, without such irritating constrictions as facts, statistics, data, history or experimental confirmation. Their only guide is logic. But this is no different from what religions do when they assert the logical existence of God (or Buddha or Mohammed or Gaia). Theories ungrounded in facts and data are easily spun into any belief a person wants. Starting assumptions and trains of logic may contain inaccuracies so small as to be undetectable, yet will yield entirely different conclusions.

In fact, if we accepted all the tenets of the Austrian School, we would have a second reason why it fails to qualify as science. To be a science, a school must produce theories that are falsifiable -- that is, verifiable. If a theory's correctness or falseness cannot be verified, then it is not science. Perhaps it's religion, or metaphysics, or an unsupported claim. Austrian economists make claims about the market (such as markets know better than governments), but then deny us the tools for verifying those claims (such as statistics). One might ask: how do they know?

Austrians claim to know these things by logic. But although their literature frequently evokes "a priori" knowledge, this term appears to be misused. Humans are not born knowing that "two plus two equals four." It is something they must learn from their environment, namely, school. Forging this learned knowledge into axioms comes later, and then through a process of trial and error. So in this sense, "a priori" knowledge doesn't even exist, unless one refers to a very basic level of knowledge capability, such as the physical construction of the human brain or animal instincts.

Austrians may be using the term "a priori" to mean logical proofs or axioms, such as "If A=B, and B=C, then A=C." But if Austrians were creating economic axioms that were true by logical force, then the Austrian School would become world famous overnight, whether mainstream economists liked it or not. In truth, Austrian journals are not filled with these kinds of axioms. Their arguments are really no more than theories that are guided or tested by logical proofs. Again, that's no different from what religions do. The fact that we have thousands of different religions in the world is remarkable evidence of the fallibility of this method.

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1. Friedrich Hayek, Individualism and Economic Order (Chicago: Henry Regnery Company, c. 1948), p. 73.

2. Ken Gaillot, Jr., "Market Process Theory,"