By Jeff Peterson II
If you are a student of the Austrian School of Economics, the odds are you have come across the various objections to the Austrian School’s methodology on a regular basis. Further, if you are an opponent to the Austrian School of Economics, skeptic, or new to economics as a whole, chances are you may have heard these criticisms or may have used some yourself.
As an Austrian, I like to think that most of the criticisms stem from the fact that the Austrian School of Economics, while it has been around for sometime, is rather new still to economic thought, especially to individuals who could be considered novices to economics, who shrug economics off as a “dismal science”, or are a student of another school.
So today we will be looking at some of the basic objections to this, dare say, up and coming school of thought to hopefully lay them to rest.
The Pythagorean Triangle Won’t Unclog Your Toilet:
Probably one of the most common objections Austrians hear resembles something like this, “Austrian Economics doesn’t solve real world problems!”, or “Austrian Economics has never been implemented, so it must be bad.” On the former, it is important to distinguish what economics in general is meant to do. Economics is not meant to solve problems. Economics aims to explain how economic actions of individuals affect the incentives and actions of others. Economics isn’t supposed to solve real-world problems. It’s supposed to solve logical ones. Economics can’t tell you anything is wrong, it can only tell you about the consequences of a given action or policy. Economics does not tell you, for instance unemployment is bad, it just points out the inevitable consequence of, say, a minimum wage law. Economics explains how the world works, not how it ought or should be (whether you like it or not). Economics is a study of what is, not of what someone likes or how someone thinks things should be. “Good” or “bad” for a certain person is up to that person, not you. Saying “I believe these people have X rights, and I say this would happen under X conditions” is not economics, it is just describing an ideology, which is important to distinguish the two when discussing economics. It’s like physics in that sense, that knowledge empowers you to discover appropriate solutions.
One could argue that by the same token no other school of thought solves problems either. Yes, this is true.
For instance, Keynesian economics tells you how to solve problems, which is true also, but so does Austrian Economics, because it knows what caused the problem in the first place. So what they are really complaining about is that it does not tell us how government can make the world a better place. Austrian Economics is a descriptive school of economics, not prescriptive, as in, ”if this policy is implemented, X will be higher/lower than it would otherwise have been.” Some people might write this off as useless, but if you were talking about a minimum wage hike, for example, you would probably want to know if it is going to put upward pressure on unemployment.
Now as you are reading this you could be saying, “Hold on, I have read Austrians give prescriptive policy recommendations!” Using food stamps as an example, Austrians will try to say, “This is what will happen if you cut food stamps” and “this is what will happen if you don’t”. But that does not mean that Austrians prescribe any particular way or timetable of stopping food stamps. It’s not prescriptive, but it can and does say that if your goal is to feed more poor people, you probably don’t want food stamps as the final and ongoing solution. This is the objective of Austrian economics, to describe the world as it really is, or more specifically, the world as it can only be, not just how it happens to be, as physics does. How it should be, or even how it will be is something Austrian Economics does not do- it describes the principles that govern its behavior, within its scope.
Austrian economists tend to recognize that metrics are not accurate enough to allow you to say, “Now you need to raise X. Now you need to lower the X”, or such nonsense.
The policy recommendations are not tailored to imaginary measurements and resulting controls, but are general guidelines, like “reducing taxes will make the economy more efficient” and “farm subsidies distort price signals, causing more hunger and a weaker agricultural industry”.
Austrian economics merely describes the actual nature of economics. As Steve Horwitz explained, “Its a set of propositions about how markets work; an analytic toolset to allow us to study and interpret society.”  All it does is explain things. If you understand economics correctly, you can point out the unintended consequences of the next utopian political scheme. It points out how “trying to solve” the so-called issues create other problems and disrupts natural market mechanisms. It consistently exposes the unintended consequences of a given policy, and show that the goals of prosperity shared by almost everyone would be better served without it. Austrian economics makes clear qualitative analyses of virtually every imaginable policy, regulation, subsidy, etc. What it finds is that policies, regulations, subsidies, and so on create the majority of the so-called problems and issues. Austrians are aware of the unintended consequences of policies ostensibly designed to solve this or that problem, and as such we’re also aware that in most (if not all) of those cases the problem itself is a consequence of a previous intervention. So, we consistently find that government intervention doesn’t bring about its (ostensibly) desired results, as human beings we dislike most of the actual results, so we find ourselves objecting to those interventions on humanitarian grounds. [Austrian] Economics wont do your dishes and it won’t pay your bills, just like the Pythagorean Triangle will not unclog your toilet.
To address the latter objection, it is true that Austrian Economics has not been “implemented”, but hopefully with the explanation above Austrian economics has been cleared up on how it wouldn’t apply in this case. Even despite this claim, that does not mean that Austrian Economics has not made some significant contributions, such as the theory of marginal utility, along with subjective value, and the Austrian Business Cycle, which has led Austrians to successfully predict and warn everyone of every single economic collapse in American history. One thing to note also is that you can’t really “implement” an economic philosophy. Just as one does not “implement” semiconductor physics in creating a silicon-based computer, but uses that scientific knowledge to inform their decision-making. To say that Austrian economics has not been “implemented” is to conflate the knowledge-seeking scientific inquiry with what people do with the knowledge that they learn (and whether they accept it or not in the first place).
Lastly, for the sake of argument, even if Austrian Economics could be implemented, the fact that a government has not adopted an economic philosophy resembling the Austrian School’s is not necessarily a point in, say, Keynesianisms favor. Would a government adopt a policy that favors them or favors you? Governments will adopt a policy that grants them the most power and especially the policy that has the flexibility to wage war without upsetting the populace (raising taxes). This, of course, is done by increase the supply of money. Just because governments have not adopted an Austrian point of view, does not mean it is not good for the economy, it typically means it is not good for them.
But People Aren’t Always Rational!?!
Mises coined the phrase “Human action is purposeful behavior”. Given the definition Austrians use of action, which is deliberate action, which implies purpose, or a goal, action being a means to that end. From this Austrians deduce that acting man employs means (via action) to achieve ends (the goal of his action). From there we can deduce that he will only act if there exists in his mind a future more satisfactory to him than the future he believes will come about without action, or he wouldn’t act – and that by acting he can bring about that future or, again, he wouldn’t act. From there we say that given many possible ways to improve his situation, he will act the satisfy the most urgently felt uneasiness.
A criticism of this is that man (or actors) does not always act rationally. Say I go out with my friends to a bar, end up spending too much money, and wind up hung over the next day. From another persons perspective this would seem irrational, yes? This person observing certainly would not have done that, right? Well, no. When we have an end in mind and utilize resources towards this end, we are being rational, regardless of the end or means. Rational means purposeful, nothing more. So, we could be incredibly hasty in our actions and constantly thinking them through poorly, but since we are using our resources to attain a certain goal, we are by Mises’ definition “rational”. “Rationale” is another way of looking at this. I do have an end in mind; perhaps I like to drink, perhaps I want to meet an attractive woman, perhaps I just want to be around my friends. Thus, my actions are rational, based upon my subjective preferences.
“Rational” in mainstream economics is different than rational in Austrian economics. Rational in Austrian terms simply means “purposeful behavior” as contrasted by reactive behavior or unconscious behavior.
In making this point, Mises writes:
Human action is necessarily always rational. The term ‘rational action’ is therefore pleonastic and must be rejected as such. When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaningless. The ultimate end of action is always the satisfaction of some desires of the acting man.
Mises deals with this in great depth and conclusively. As well as Rothbard who wrote:
[…] Human action, on the other hand, can be meaningfully interpreted by other men, for it is governed by a certain purpose that the actor has in view. The purpose of a man’s act is his end; the desire to achieve this end is the man’s motive for instituting the action.
All human beings act by virtue of their existence and their nature as human beings. We could not conceive of human beings who do not act purposefully, who have no ends in view that they desire and attempt to attain. Things that did not act, that did not behave purposefully, would no longer be classified as human.
Whether men or actions “are rational” isn’t even a sensible question. Do men employ reason? Yes. Are other factors besides reason used which impact their choices? Obviously. Does that mean men are irrational? No.
Men have ends – subjectively chosen, always. Perhaps psychologists can elaborate on these reasons, yet which economists have no reason to care about. People want what they want, and reason is not involved in that selection. The question is, how best to achieve those ends with a minimal sacrifice of other ends? There we always utilize reason. That’s an error- prone process, but we always attempt to reason our way to the means most suitable to our ends. One cannot do anything but select goals and choose means to attain them. Rationality is the use of logic and reason, irrelevant of the validity of the conclusions.
As another example, say we have a man going to work. Now assuming he wants to keep his job, as observers, we can predict how this man will get to work; he will take the subway, bus, or drive in one of the most direct routes to get there. Seeing how he wants to keep his job, we could rule out the other means of getting to work that fall under “irrational”, such as walking in reverse around the globe, hitchhiking, or skipping there while stopping every ten feet to spin on his head for a minute.
However, even if we did observe him doing one of these irrational actions, does that automatically mean he is being irrational? No way. We don’t know the ends he wishes to achieve so we should never assume so. In this case, his ends may be to get fired.
Over the span of time, out and out irrational behavior gets taken care of by evolution, as those who behave rationally and achieve desirable ends are more likely to prosper and pass on their genes while those who behave in an actual irrational manner are less likely to achieve their ends, less likely to prosper, and less likely to pass on their irrational genes.
Probably one of the most common objections I hear regarding Austrian Economics is that Austrians reject empirics implying Austrian Economics is false because they do not test their theories. That or they point to some counterfactual that is predicted by a model, in which they claim it is correct because it is supposedly “empirical”. Empirical evidence means as much to any economist as to any other, because each one has boundless ability to interpret historical fact into explanations that bolster their own theories. All economists discuss empirics, and apply theory to the real world. Austrians on the other hand object to doing the opposite, letting empirical observations inform theory, or pretending it even can. Empirical evidence is mere observation. Without sound economic theory to interpret that which you observe, you will never have sound economic theory.
As Rothbard states:
In the sciences of human action [which economics is the study of], on the other hand, it is impossible to test conclusions. There is no laboratory where facts can be isolated and controlled; the “facts” of human history are complex ones, resultants of many causes.”
The claim to some sort of empirical objectivity in mathematical economics is false. Because controlled experimentation is impossible in economics, any interpretation of real world data must make use of a theory of a set of assumptions, either implicit or explicit. The difference, then, between Austrian economics and “empirical”, economics is that the Austrians are explicit in their use of carefully considered axioms as the basis of their analysis, while the “empiricists” are themselves blind to the adhoc mish-mash of unexamined assumptions that inform their own interpretations. There is knowledge we can know to be true just by thinking about it, and it is apodictically true. This is what the entire basis of Austrian economics, the fact that man acts. You don’t need to test this continually, it’s true no matter what location no matter what time, human action is grasped a priori, and from there, being confined to the laws of logic, we deduced the entire system of economics we call Austrian Economics. Austrians are lectured about statistics or what theories like Keynesian, monetarism, neo-classical intend to do, Austrians are aware of the status and nature of such propositions, which is exactly why they are incompatible with economics; economics is the logic of human action, human action and behavior cannot be confined predicted through empiricists observation. The Austrian School knows socialism won’t work just by logical deduction where other schools actually think it must be tested first to see if it is really bad or not. The only way to understand human action is to follow the action axiom. Historians, for example, need not follow the action axiom as a theoretical formulation – they have their own methods of studying. The logic of action, honestly, is but one analytical tool to help us expand on the knowledge of human action. The logical categories of action helps us provide a clear frame of what is going on and what is happening, so long as the formulations *are* occurring in reality at that time.
Many Austrians have addressed the issue on empirics time and time again. For instance, Walter Block, Senior Fellow at the Mises Institute and author of Defending the Undefendable, speaks of a time when a his former mentor stated “Austrian economics could benefit greatly from developments in empirical economics…” in written correspondence. Walter Block replied:
I don’t know whether you remember this or not, but when you were my dissertation advisor at Columbia University, my topic was rent control. I was, presumably, trying to test the usual implications of this law: that it causes rental housing deterioration, reduced investment in residential rental units, shortages, etc. These were the dependent variables in my regression equations. The independent variable was presence of rent control. My observations were cities. I tried to control for a few other things, such as wealth, income, race, etc. Most of the time the sign of my rent control variable was the correct one, indicating consistency between my model and the usual economic analysis of rent control (in which both Austrians and mainstreamers fully concur).
But every once in a while I got the wrong sign for this variable, indicating, if you believed my results, that rent control actually improved the housing situation. On these occasions did you brag to your colleagues that you had this young genius, Block, on your hands, who was in the process of overturning everything we all knew about rent control? Did you urge me to send my earth shaking results to the AER for publication? To ask these questions is to answer them: you did no such thing. Very much to the contrary you said, “Block, go out and do this again until you get it right!” That is what you explicitly said to me. In contrast, what I heard was: “Block, you dummy, go out and do this again until you get it right!” Of course, you were far too polite and supportive to actually say this to me, but I could tell that this was what you were thinking; at least, this is the way I felt, at the time.
So, what was “testing” what? Were my equations really testing the usual supply and demand analysis of rent control, or was the usual supply and demand analysis of rent control testing my econometrics? Obviously, the latter was the case.
You just aren’t going to be able to find an empirical observation or collection thereof which vindicates one theory and fails to vindicate another. There will always be more than enough relevant facts to dig up and point to as the most relevant causal factor, and there’s no way to resolve this quantitative dispute over which of the known facts was most important in bringing about the observed effect. You think you can prove monetary policy is the cure for recessions; I can just as easily prove the recession was caused by ice cream sales or volcanic activity. . Even it were possible to do experimentation, or even if interpretation of events in the past weren’t guaranteed to yield a validation of almost any possible economic hypothesis and falsifications of all others, these things are as unnecessary for establishing the relationship between prices and the money supply as they are for evaluating the assertion “no two straight lines can enclose a space”. I doubt anyone has ever set out to discover whether this is true by observing the real world, and any attempt to do so would be utterly silly.
There’s almost nowhere economists haven’t fallen short, but at least when it comes to the Austrian school it’s possible for those errors to be discovered and corrected by others. This makes the Austrian School unique because as of now it is the only school of thought where empiricism is not relied upon, where the problem is that you can’t make economic laboratories where complicating factors can be isolated out so the subject at hand can be examined in unadulterated purity. When it comes to economics I can ask almost any statement and ask that it either be validated or falsified by observation, and neither of those efforts can ever possibly fail. We can observe all day long that event B was preceded by A, but only logic can establish causality, not by observing relations that are temporal. If the result fits the prediction, we figure it’s validated even if other explanations are available for the same result, as there always will be. If it doesn’t fit, we can always find an excuse, some complicating factor (it always comes down to an assessment of relevance, which is a quantitative question that can never finally be answered). Even if all the pertinent factual questions are agreed upon by you and I, if our theories are different we’ll assign different relevance to each of those facts and we have no way to resolve those disputes, So, in the end no observation can ever validate one theory or falsify another to anyone’s satisfaction, and no school of thought that teaches otherwise has any real way to correct errors.
We’re attempting to do science here, which means first we have to be able to isolate things before we can examine the effects of various events. You can’t say, “well on earth you never see gravity without air resistance, so I don’t see why critics keep trying to deal with it in a vacuum”, because on the other hand you’re going to watch a feather fall and get your theory of gravity all messed up.
But Austrians Reject Math:
Another criticism regarding the Austrian School of Economics is them rejecting math, that they reject math and thus come off dogmatic or merely use math to justify their ideology. Is this true? Do Austrians reject math all together? Well, mathematics is indeed powerful, but there’s also a point where understanding is exceeded by obfuscation. Unfortunately, mainstream economics has taken it upon itself to completely conceal what’s being said, which leads to physicists and the like [that usually need to use math] to fling insults of “pseudoscience” at Austrians. And granted. The Austrian idea of economics, on the contrary, accepts intellectual humility.
Critics should not dismiss Austrians so quickly on this basis of “rejecting math” though. Most Austrian economists (if not even all) understand math and conventional economic theory for the simple reason that, being economists, they were force-fed this stuff during their training at university. For instance, Rothbard, who had a degree in math states:
Since knowledge in physics is never certain and absolute, positivists can never understand how economists can arrive at certain truths; therefore they accuse economists of being “a priori” and “dogmatic”. Similarly, cause in physics tends to be fragile, and positivists have tended to replace the concept of cause by one of “mutual determination”. Mathematical equations are uniquely suited to depicting a state of mutual determination of factors, rather than singly determined cause and effect relations. Hence, again, mathematics are singularly suitable for physics.
I have grave philosophic doubts as to whether the concept of cause can really be expunged from physics. But whether or not it can, it certainly cannot be from economics. For in economics, the cause is known from the beginning — human action using means directed towards ends. From this we can deduce singly determined effects, not mutually determined equations. This is another reason that mathematics is uniquely unsuited to economics.
Second, quite a number of Austrian economists didn’t start out that way and converted at some stage during their career.
Third, they did already provide ample epistemological discussions about why math’s not suitable to model any human action at all.
Fourth, they fully recognize that there are indeed a lot of “ifs”, which makes modeling or predicting future behavior more or less impossible, especially if it is done on the basis of arbitrary historical data, with the additional difficulty of including all the variables that influenced historic events (especially the motivation behind certain actions). Economics, when undertaken properly, is a science of human action. In human action, there are no quantitative constants. Any formula you try to throw at it, therefore, is just something you made up and is not going to work out. If by sheer luck some number comes out tomorrow that vindicates your formula, next week it won’t do it again. Because we’re not protons.
To use math would, in most cases, be that you are able to definitively measure something… but when it comes to human action, as Mises put it, there are no fixed points, no fixed correlations that can be used as a yardstick. Even the relatively simple task of “measuring inflation” is forever trapped in an arbitrary world of the observer’s subjective view point, not some objective measurement for all:
The pretentious solemnity which statisticians and statistical bureaus display in computing indexes of purchasing power and cost of living is out of place. These index numbers are at best rather crude and inaccurate illustrations of changes which have occurred. In periods of slow alterations in the relation between the supply of and the demand for money they do not convey any information at all. In periods of inflation and consequently of sharp price changes they provide a rough image of events which every individual experiences in his daily life. A judicious housewife knows much more about price changes as far as they affect her own household than the statistical averages can tell. She has little use for computations disregarding changes both in quality and in the amount of goods which she is able or permitted to buy at the prices entering into the computation. If she “measures” the changes for her personal appreciation by taking the prices of only two or three commodities as a yardstick, she is no less “scientific” and no more arbitrary than the sophisticated mathematicians in choosing their methods for the manipulation of the data of the market.
In a way we all use “math” in making our own determination, it isn’t that “math” is bad; but the real question is whether or not what we are discovering is an objective truth.
There is an objection of praxeology (which is the study of Human Action) utilizes game theory, which math is used in, It’s true that math is used in game theory, but not to predict human behavior, which Austrians are against. Most game theory scenarios, all of which are deliberately contrived, have a limited possible set of outcomes for each actor, and distribution of those outcomes among participating actors can be expressed mathematically, but that itself isn’t a praxeological analysis because it has to do with possibilities, not human action. And praxeology doesn’t “utilize” game theory: game theory, like economics, is a branch of praxeology.
Eugene Wigner wrote a famous essay on the unreasonable effectiveness of mathematics in natural sciences. He meant physics, of course. There is only one thing which is more unreasonable than the unreasonable effectiveness of mathematics in physics, and this is the unreasonable ineffectiveness of mathematics in biology.” Mathematics is generally not applicable to biology [which includes economics] like it is in physics. Forcing the application of mathematics for purposes of making it more physics-like is pseudoscientific.
It’s not that Austrians don’t believe math is suitable either, it’s that Austrians recognize that economics is a soft science, far too imprecise for equations to make accurate, or even useful, predictions.
As Hayek explained in The Counter Revolution of Science, hard sciences use a specific set of strict rules and controls, trying to eliminate the human factor, while economics, psychology, sociology, et cetera all specifically are attempting to understand that human factor. Instead of trying to hide human action and motivation, those are central to their disciplines.
Those soft sciences, therefore, should not engage in a pretense of knowledge, where they affect precision and certainty with their metrics and math, when it’s actually somewhat worse than flipping a coin.
Hayek also clarifies this further in his UCLA interviews in which he speaks multiple times on math:
[...] I limit the possible achievement of economics to the explanation of a type–One of my friends has explained it as a purely algebraic theory. [...]
[...] you get an algebraic formula without the constants being put in. Just as you have a formula for, say, a hyperbola; if you haven’t got the constants set in, you don’t know what the shape of the hyperbola is–all you know is it’s a hyperbola. So I can say it will be a certain type of pattern, but what specific quantitative dimensions it will have, I cannot predict, because for that I would have to have more information than anybody actually has.
One of the biggest problems is assuming that any mathematical model can ever make accurate predictions about future human behavior. There are much too many factors that go into the market, and any of these could change at any given time. We can make observations about any given moment, but does our observation of it influence people’s attitudes and thus future outcomes? If we understand basic patterns we can say what is happening, like say identifying a bubble, but we cannot say exactly when this bubble will pop, how long prices will rise, which markets will be affected, etc.
Whether it is on the micro level or the macro level, economics studies human behavior; human reasoning in a world with scarce resources, limited time, and unlimited wants. Economics is a social science, not a math class. Humans have the ability to learn and adapt, numbers do not–a number is always the same number next week and twenty years from now. Learning is what separates a human actor from a proton.. Formulas and numbers are not subject to change whereas we are.
How many of you reading have been in a discussion on economics where the other individual throws out statistics to validate his or her claim? Depending the topic such as health care or the minimum wage, this happens many times. Since I have studied Austrian Economics there is a saying I have been fond regarding statistic goes which goes: Austrians have strong words for those who use statistical analysis without explaining qualitative, cause-effect explanations. So, what is the Austrians view on statistics? To summarize, Austrian economists reject empirical statistical methods as tools applicable to economics, saying that while it is appropriate in the natural sciences where causal factors can be isolated in laboratory conditions, the actions of human beings are far too complex for this “numerical” treatment as passive non-adaptive subjects. Instead, one should isolate the logical processes of human action.
All you can hope to establish with statistical analysis is correlation, and in the real world even that is a great feat in the face of so many complicating factors. But even if a correlation is discovered consistent enough to imply a likely causal relationship, the direction of the causal arrow still needs to be determined, and each of its endpoints. That is, you can’t hope to discover via this analysis whether later event was caused by the earlier one, or whether they’re both caused by a third factor.
Austrian economics works on first principles, cause and effect. You give me statistics, and I can give one or more reasons, causal factors that those statistics would be impacted by. The quantitative relevance of each factor is unknowable though. For instance, if you were to show me that unemployment has gone up, I might talk about minimum wage laws, payroll taxes, regime uncertainty, and so on. Your response may include outsourcing, cash hoarding, etc. However, there’s nothing in the statistics to let this dispute be resolved. Only theory can establish a causal link between two (real or hypothetical) economic observations. But more importantly, the only way to adopt these points and have it meaningful is to use deductive axiom(s) that explain why those factors matter. Arguments against Austrian econ have to attack the logical basis behind its corollaries, rather than attacking straw arguments and misrepresentations.
At the same time, you might say “Austrian Fail! Minimum wage went up and unemployment went down!” In which case you’ve misunderstood Austrian theory: Austrians don’t claim increasing the minimum wage will cause unemployment to go up, only that increasing minimum wage will cause unemployment to be higher than it would otherwise have been, and that unemployment is affected by other factors.
Austrians argue against increasing the minimum wage because praxeology tells them future unemployment with a higher minimum wage will be greater than future unemployment with a lower minimum wage, not because they predict future unemployment rates to rise as a result of the increase, other things being equal. You can never observe both of these states because only one will occur in reality. We must rely on the deductive logic of action to figure out the proper course.
Let us assume you were to show me that healthcare costs were lower with price controls and have statistics to show otherwise, how do we resolve the dispute when I don’t have statistics to show anything contrary backing up my claim?
My argument is not empirical, it is logical. I have no doubt you can find examples of prices after an intervention being lower than the price before the intervention. Again, the Austrian prediction is that prices after the intervention will be higher than they otherwise would have been. The problem though is that your data does not refute my prediction and can’t possibly contain any information that could resolve the dispute even in principle.
Statistics are simply data points. They aren’t very good ones, either, as any comparison of them relies on the assumption they aren’t “massaged” to fit a narrative, nor do the situations differ that are being compared. In other words, if I have a situation where unemployment rises, this is a fact to be explained, not a fact that proves anything. Most other schools of thought fall into a correlation=causation fallacy here, or a post hoc ergo propter hoc fallacy. The Austrian school, in contrast, starts with deducing the laws of economics logically, and then proceeding to explain events. Only with the natural sciences, where controlled experiments exist and are repeatable (and assumptions of constancy are introduced), can – hypothetical – natural laws be deduced from data. There is no “control set” with human beings – only deduction from true axioms like the action axiom can lead to knowledge of them. You can’t say Y happened after X therefore because of it, but that’s exactly what every other school of thought does, while we sit here explaining the actual, logical causal relationships.
How Many Austrians Does it Take to Screw in a Light bulb?
Answer: Austrians don’t make quantitative predictions. You may have heard this joke. What is a quantitative prediction, and why don’t Austrians make them? Well, rather than define what one is, let us illustrate. A quantitative prediction would look like “If the minimum wage is increased by 2$, unemployment will increase by n%”. Where Austrians say, “if you increase the minimum wage, unemployment will be higher than it would otherwise have been”. As to the why of Austrians not making them is quantitative predictions involve a lot of hubris which involves assumptions of mathematical constancy that are not realistic, as well as assumptions regarding the value scales of millions of people simultaneously. To know the quantitative outcome of some economic action is frankly nonsensical- all you can really know is the causal link that if you do A, then the result will be B. The economy cannot be predicted quantitatively. We can, logically, predict whether and in which direction a given event will apply pressure on a given metric, i.e., prices. The formulas of econometricists try to predict the values of those metrics in the future, and they’re wasting their time along with our prosperity.
Regarding Austrians though, no Austrian prediction – that is, a prediction derived from the Austrian model, versus a prediction made by somebody who calls himself an Austrian – has ever been wrong. There is no trick here, just the observation that no quantitative predictions can be made through economic analysis, because economics is a study of human action wherein there are no quantitative constants.
So you may be asking right now, “so Austrians do make predictions then?” Sure we do. It’s not exactly predicting the future though. It’s one thing to be able to say that with increasing minimum wage unemployment will be higher than otherwise. It’s quite another to say that it will go up, let alone by how much. If the minimum wage was suddenly increased to $45, saying it would go up is a pretty safe, but only because it’s pretty safe to say such a dire change would be enough to overcome other factors putting pressure in the opposite direction. But the ability to do that rarely comes in handy, because economic policy seldom takes big turns like that. Qualitative predictions are useful, or being an Austrian would be silly. Fallible but non-arbitrary quantitative predictions are possible, but economics is of no use there. This is what speculation is for, and why they speculators usually specialize in a particular market when the ability to think you know something before someone else is useful. However, even there, quantitative predictions are nearly ultimately impossible with any real accuracy, which works because qualitative answers are all that are needed in this area – a price will go up, or it will go down, in the face of some new development.
Now what this has to do with the joke and one reason it is funny (if you are a nerdy Austrian like me) is that to be able to answer it is not an accomplishment in economics. In other words, Austrians could do just as easy as anyone else, because Austrian theory does not apply here. Even “how much capital does it take to start up a coffee shop?” is a question for entrepreneurs, not economists. Even entrepreneurs don’t generally do that though. They don’t have to. They want to know if a price will “go up” or “go down”, not of the price would be “be $42.67″.
Now to be fair, one may argue that predicting human behavior is possible. Let us assume that a coffee drinker goes to the same coffee shop, orders the same drink every day, and goes to the same place on his lunch break. Aha! Austrian fail! This is where we need to distinguish between speculation and economics. Again, this is merely speculation.
To distinguish on what speculation and entrepreneurship is, we look to Rothbard once again:
Entrepreneurship is also the dominant characteristic of buyers and sellers who act speculatively, who specialize in anticipating higher or lower prices in the future. Their entire action consists in attempts to anticipate future market prices, and their success depends on how accurate or erroneous their forecasts are. Since, as was seen above, correct speculation quickens the movement toward equilibrium, and erroneous speculation tends to correct itself, the activity of these speculators tends to hasten the arrival of an equilibrium position.
The direct users of a good must also anticipate their desires for a good when they purchase it. At the time of purchase, their actual use of a good will be at some date in the future, even if in the very near future. The position of the good on their value scales is an estimate of its expected future value in these periods, discounted by time preferences. It is very possible for the buyer to make an erroneous forecast of the value of the good to him in the future, and the more durable the good, the greater the likelihood of error. Thus, it is more likely that the buyer of a house will be in error in forecasting his own future valuation than the buyer of strawberries. Hence, entrepreneurship is also a feature of the buyer’s activity—even in direct use. However, in the case of specialized producers, entrepreneurship takes the form of estimating other people’s future wants, and this is obviously a far more difficult and challenging task than forecasting one’s own valuations. 
With their specialized knowledge of the particular markets in which they work, speculators make money on quantitative predictions all the time. This is not a feat of economics. Let’s say you spot a great investment, congratulations this is a feat of entrepreneurial speculation, not of economics. Speculators or entrepreneurs are well advised to become experts in the specific market they are dealing with, to identify good opportunities for profit, be it unexploited or under exploited. Economists (as economists) don’t do this. Markets in general are what economists theorize on. Specific markets are for entrepreneurs. However, entrepreneurship, or speculation isn’t even applied economics. You could have vast knowledge of economics that is near useless to you as an entrepreneur. The skills required for each task are quite separate from each other. Speculators do analysis of a specific market, the market as a whole is done by economists.
In conclusion, one could write a whole book about the things covered here because Austrian Economics is something that can not be learned in one article. In the spirit of humility there are many prominent Austrians that have covered what I have that lay the same objections to rest. My effort was to do the same, yet in a manner that was easy to understand to the newcomer of economics. Since Austrian Economics is a school of thought that is relatively unknown I’d encourage any to look into some of its foundational authors, come to understand that not all knowledge is hypothetical either. Austrian Economics has more or less exploded onto the scene as of recent years and hopefully can be used as a tool as to the best way to understand economics: By starting with individual human action in a free market, a baseline against which to examine the effects of, say, political interference with that system. Economics- as distinct from finance or being an entrpreneur, and so on- in day to day decisions isn’t especially useful, and probably wouldn’t be useful at all in a free market. I discuss it in hopes of persuading individuals to look beyond politics for the solutions to social problems, and Austrian economics is a great tool in achieving this end. Subjectively of course.
Jeff Peterson II
 What Austrian Economics IS and What Austrian Economics Is NOT with Steve Horwitz
 Mises in Human Action p. 19
 Man, Economy, and State with Power and Market by Murray Rothbard
Chapter 1 FUNDAMENTALS OF HUMAN ACTION pt1 1. The Concept of Action
 In Defense of Extreme Apriorism By Murray N. Rothbard
 Is Austrian Economics a Cult? By Walter Block
 A Note On Mathematical Economics by Murray Rothbard
 Human Action by Ludwig von Mises Pg 222
 The Unreasonable Effectiveness of Mathematics in the Natural Sciences by Eugene Wigner
 The UCLA Interviews with Friedrich Hayek
 Man, Economy, and State with Power and Market by Murray Rothbard
CHAPTER 2-DIRECT EXCHANGE Pt. 7 Speculation and Supply and Demand Schedules