This is the first part of the first paper in a series to develop the Even More Austrian program in economics by adding Popper (another Austrian) to the original Austrians (Menger, Bohm-Bawerk, Weiser, Hayek et al) and the modern “Austrians” who are mostly in the US. It would be nice to call this the Australian School or the Austro-Australian school but there is a problem of doctrinal division among the different branches of the local school (the two RMIT groups, the Rozelle group, the Lower Neutral Bay group and the ungrouped group).
The paper was called “The Austrian School of Economics as a Popperian Research Programme” and it was prepared for the Popper Centenary Conference in Vienna in 2002. When the papers were compiled for publication the two referees gave the paper the thumbs down and it did not make the cut for the published proceedings of the conference. This was a good sign because important new ideas are always supposed to be rejected in the peer review process when they first appear.
This is the first part which contains the main idea plus some general stuff on the Austrians that is useful general knowledge. The whole paper is here.
In this paper I will argue that Popper supported the Austrian school of economics in three ways.
First, his theory of metaphysical research programs shows that the Austrian program cannot be dismissed as “unscientific” quite as easily as many critics suppose. Some of the so-called a priori principles of Austrian economics can be regarded as working assumptions, either methodological or metaphysical postulates, of the kind that occur in all sciences. These need to stand up to criticism to assess their pragmatic value for promoting the study of economics but they do not have to be testable or falsifiable like scientific theories which are supposed to explain how the world works.
Second, the method of situational analysis and the rationality principle which Popper advocated for the explanation of events in the social sciences is practically identical to the Austrian approach which is labelled “praxeology” (the logic of action).
Third, in addition to supporting in principle the use of a metaphysical framework for analysis, Popper championed some particular metaphysical assumptions that provide a congenial framework for the Austrian approach. In other words, Popper and the Austrians are metaphysical fellow travellers.
Part I provides a brief introduction to the Austrian school of economics. Part 2 sketches Popper’s views on the function of methodological conventions and metaphysics in shaping and directing research programs. It also indicates some elements of the program that flows from his own work. Part 3 describes how Popper’s ideas provide support to the Austrians. An addendum shows how Larry Boland anticipated some of these ideas.
The Austrian School of Economics
The leading features of the Austrian tradition include methodological individualism, the origin of social institutions as the unintended consequences of human action, the salience of dynamic competition and entrepreneurial innovation in the marketplace, the subjective theory of value, recognition of the time factor in social and economic processes, and the uncertainty of human knowledge. Vaughn (1990) identified three recurring themes in Menger’s major text (1) knowledge and plan, (2) the primacy of process, and (3) spontaneous order and the progress of civilization. The most distinctive feature and the one that has created the most problems for them in gaining acceptance in the mainstream of modern economics is the concept of praxeology, of which more in a moment.
The founding fathers of the school were by Carl Menger (1840-1921), Friedrich von Wieser (1851-1926) and Eugen von Bohm-Bawerk (1851-1914). Their busts are displayed on three consecutive pillars in the quadrangle of the old Vienna University and people who attended the Popper Centenary Conference may recall them, near the book displays. Menger is usually named with Walras and Jevons as a leader of the Marginalist Revolution although his approach was very different from theirs.
Major contributors to the Austrian tradition were Knut Wicksell (1851-1926), Ludwig von Mises (1880-1973, Lionel Robbins (1898-1984),Friedrich A. Hayek (1898-1994) and Murray Rothbard (1926-1995). Contemporaries include Ludwig Lachmann and Israel Kirzner The Austrian tradition appeared to be firmly placed in the mainstream of the economics profession until Keynes captured the field in the 1930s and the Austrians became practically invisible until the movement staged a revival in the 1970s. Vaughn (1990) provides an excellent timetable and summary of the reasons for the fall and rise of the school. The leading stronghold of Austrian thought at present is the Mises Institute and other centres with a significant Austrian presence include the Institute of Humane Studies, the George Mason University and the Cato Institute [Note 1].
Several factors contributed to the eclipse of the Austrian tradition. First, economics fell under the spell of mathematical analysis, as described by Ingrao and Israel (1987, 1990), and this distracted attention from real market processes where the Austrians focus their attention [Note 2]. Second, the subjectivism and methodological individualism of the school were widely misrepresented as either a psychological approach or as an indefensible form of ontological individualism, a claim that only atomistic individuals existed, independent of social contexts and historical influences. Third, many of the leading Austrians, especially Mises, taught that the undesirable consequences of state intervention in markets far outweigh the intended effects and this put them at odds with all progressive social movements up to the present time. Finally, both positivism and falsificationism in the philosophy of science seemed to rule out some of the basic principles of the Austrian approach, most especially the doctrine of praxeology.