Austrian Economics and Science

There are quite a few economic schools of thoughts out there. Some may like the Keynesian economic model, others want the “free market” Chicago model others, Marxist, Anarchist,  and on and on. There is one particular economic school of thought that stands apart from the others, and not in a good way. I’m talking about Austrian Economics.

What is Austrian Economics?

To begin, let’s look at what Austrian Economics is. Austrian economics is a heterodox school of economic thought based on an idea called “Praxeology”, methodological individualism. Or more simply put, it is an economic theory that is outside the scope of accepted economic theories, and bases its approach on an idealist philosophical approach that rejects statistics, math, and science in favor of postulations of economic theory based on “logical” conclusions. They claim that statistics cannot completely or accurately asses the economic world, and so they decide that using “logic” to understand the basic motivations of humans is the way to understand economics. There is a reason this approach is rejected by the majority of self-respecting economists. It’s complete and utter bullshit.

Why Austrian Economics is Garbage

First let’s hear what one of the founders of the economic thought said, and we’ll dissect it.

“Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego’s meaningful response to stimuli and to the conditions of its environment, is a person’s conscious adjustment to the state of the universe that determines his life. Such paraphrases may clarify the definition given and prevent possible misinterpretations. But the definition itself is adequate and does not need complement of commentary.”

The above statement was made by Ludwig Von Mises to explain the idea of “Praxeology”, which underlies the philosophical roots of this economic worldview. What does the above platitude suggest? And what are its implications? First it states that the only thing that matters is the individual. What does the individual want, what does the individual work for? He wants whatever he wants, he wants to achieve his personal goals.  In a word, the ideology of the Austrian School of economics is individualism. The idea that everything revolves around the individual’s specific desires. They postulate that this means one cannot assess society as a whole, because of the overwhelming complexity and variation of human action. They say that because the actions of human beings cannot be understood or characterized, it is useless to use such things as science, math or statistics in assessing economical behavior. This idea is absurd. We can, and do scientifically assess human behavior. It’s as if the people who came up with this economic school of thought (loose usage of the word thought there, I know)  had never heard of the sciences of psychology, anthropology, sociology or the common practice of common sense. They throw out statistical measuring and analysis of economics because it does not support their selfish infantile worldview.

Human society is not about individuals pursuing “rational self interest”. It never has been. Homo Sapiens Sapiens are social animals. We thrive off of human touch, that connection that keeps us happy and sane. Isolated people are not happy people, and they are not healthy people. There is a reason why solitary confinement is such a harsh punishment. The human craves interaction with other members of his or her species. This has been demonstrated, time and time again. I dare them to prove differently to me.

Economics is not about the individual. It never has been. If economics was entirely about the individual, we’d not barter or trade (that takes more than one person) and we would just build and produce for ourselves. We would hoard hoard hoard, fighting to keep others away from our personal territory like a lone wolf in the forest. We don’t behave like that. The reason we have such an interconnected world is that humans cooperate. We’ve worked together throughout history. We need that social work, because without it we are nothing. Without cooperation we would not have economy, we would not have society, we would not have humanity. As Ernest Hemingway said; “No man is an island.” That goes doubly well for economics. Economics is not the result of many people all trying to screw the other guy, and should not be. It is utterly illogical to think that economics is about the individual, when its very definition describes it as the allocation and distribution of scarce resources. It’s not about get all you can, it’s about organizing our resources effectively.

We have to see society, politics and economics as interconnected, because they are. You can’t look at a cell in the human body and decide that because that cell is healthy the whole person must be as well. You have to understand the body in its entirety, and how it all works together. In the same way, economics and politics go hand in hand. You cannot understand one without understanding the other. Human society is organized around the solving the problems we face, and we do it together. We didn’t get to the moon through competition, or cutthroat individualism. We got there through government, the manifestation of what human cooperation can be. Nothing that was ever accomplished was accomplished by one person in a vacuum. It takes a village. Most of the world’s cultures are in fact collectivist, not individualist.

Science Spurned

Austrian economics spurns science, math and statistics. It states that you cannot assess economy with those means. Why not? Human behavior can be understood, and we are continually learning more about why people act the way they do. Mises spoke loftily of “agency” and will, but seemed to completely gloss over what those things mean. We know that Mises is wrong, that we can in fact understand human action. All we need to do is take a quick look at Maslow’s hierarchy of needs. What, you may ask, is Maslow’s hierarchy of needs? Glad you asked.

Maslow was a psychologist who devised a theory of human motivation. What makes people tick, at the very base and simplistic of levels? He organized the motivations, the needs that is, into a pyramid. We must have certain needs met before we can meet other needs. Here it is:

We look at this chart from the bottom up. First we have to address the problems that lie at the base of the pyramid. Before we can acieve anything else at all, we must have air, food, water, sleep, excretion and homeostasis and sexuality. This lower level doesn’t really change, no matter what culture you’re in. You can only last about a month without food, only 3 days without water, and when it comes to air, just minutes. Once our physiological needs have been met, then we can begin to move up the pyramid. We next need security. Body, health, etc. And the pyramid keeps going up. Notice where it says that we need income inequality, the need to feel superior to everyone else. Oh, sorry, that’s not on here.

Yes, our societies are made up of individuals. Those individuals seek self-fulfillment. However, that fulfillment cannot come in a vacuum, no matter how many college freshman who just discovered Ayn Rand want to assert. So how do we create good societies that foster an environment wherein the individual has self realization and life satisfaction? We do this by creating a society wherein everyone has that ability. We cannot achieve self actualization if we live in a society where we don’t have esteem among people, acceptance of others. We can’t have esteem of others if our priority is to crush others to get to the top. We can’t have a society at all if we don’t have food, water, housing and clean air. When many of us do not have the very basics of these most essential needs in our world, they don’t get any higher up the ladder. Crime comes from the basic needs of a human being not being met. The Austrian school wants you to think that it’s all about the individual. What they really want is for you to ignore their crimes, their crimes of greed, their philosophy of avarice. They want to rationalize their selfishness, and deny the results of their actions. The fact is that society, like people, become what they are made to be. If a person grows up in a bad environment, without proper nutrition, without proper education, without proper housing, without love, acceptance, self actualization etc. S/he will most likely not turn out to be a productive member of society. In a like manner, if we put greed, selfishness and cutthroat individualism as our creed, we sacrifice the golden goose to get the egg. Austrian economics can’t see the forest for the trees.

Marxism is a scientific approach to economics. It rejects the failed platitudes of the philosophy of greed, and looks to unite humanity in creating communities where we all will realize our true potential. Some like to say that if you want peace, it has to begin with you. In reality, if we want peace, we have to start with our communities, our countries, and then the world. You see, we are all interconnected.  We all do seek cooperation. When we focus on doing what economics should do, that is meet the needs of the world, we’ll find that the individuals that make up these societies are happy, educated, well rounded people.

If you accept science, logic, and rationality; the answer is clear. Throw Austrian economics in the garbage, where it belongs.

Unite, and help us build a better world.