Praxeology - '...causal-realist economics.' - Joseph T. Salerno

Posted by ProjectC 
'The death knell is now tolling for the mathematical and positivist pretenders to the mainstream of economics.'

<blockquote>'This praxeological method so masterfully deployed by Rothbard had been used, even if implicitly and crudely, as the primary tool of theoretical research in economics up through the 1930s. However, as Rothbard points out, it was precisely “Marshall’s distrust of ‘long chains of deduction,’” in addition to “the whole Cambridge impetus toward” making short-cut assumptions designed to make their theory more testable was one of the factors that led to the gradual breakdown of the praxeological method and its replacement by positivism.39 By the early 1950s the praxeological method and verbal logic had been eclipsed by positivism and mathematical models.


By the advent of the 1970s, however, mainstream economic theory had sunk to almost unfathomable depths, degenerating into a series of loosely related mathematical models which had little contact with reality. Following the prevailing Friedmanite-positivist methodology, the tentative “validity”—never the truth—of these models was putatively established by empirically testing their ability to predict or, more accurately, “retrodict” using the methods of econometrics. The last vestiges of the Mengerian approach thus disappeared from the curricula of graduate economics programs and causal-realist theoretical research was now completely banished from academic journals, which had become the main, if not the only, research outlet for mainstream economics.


Fortunately, Man, Economy, and State points the way out of this morass of confusion, which threatens permanent and wholesale marginalization of all branches of Austrian economics. Every page of Rothbard’s treatise is imbued with a profound awareness that the causal-realist theoretical system that he was expounding was in the mainstream of an international economic tradition that originated in the Marginalist Revolution. His treatise thus was not intended as the program for a new heterodox movement or the revival of an old one; rather it represented an endeavor to reconstruct orthodox economics on the unshakeable foundation of the praxeological method and to use this method to substantively advance the theory. In a crucial sense, economic science had temporarily lost its bearings and was beginning to stray from its rich heritage and Rothbard aimed at setting it back on course. Consequently, he never conceded the mainstream of economic science to the disciples of mathematical modeling and the positivist method, whom he regarded as an irrationalist cult that had hijacked economics and whose silly doctrines would sooner or later wind up in the dustbin of intellectual history.

Rothbard has been proven correct. Mathematical modeling has revealed itself to be a vain and formalistic exercise incapable of explaining the international currency crises, stock-market and real-estate bubbles, and the global financial crises that have wracked our world in the past two decades. It is increasingly evident even to professional economists that the tortuous positivist detour has led to an intellectual dead end. Hence, bizarre heterodox sects such as behavioral economics, experimental economics, the “happiness” literature, neuro-economics, etc., now abound. Some market-oriented economists have even abandoned modern economic theory altogether for the less rigorous rhetoric and metaphors of Adam Smith’s “invisible hand” and Hayek’s “spontaneous order.”53

The death knell is now tolling for the mathematical and positivist pretenders to the mainstream of economics. The time is now ripe for Austrians to recover their rightful position as the true representatives of the central tendency of modern economic theory by affirming the praxeological method as the research method of economics. The prodigious fruits of this method stand before us in the integrated theoretical structure expounded in Man, Economy, and State.'

- Joseph T. Salerno, Introduction to the Second Edition of Man, Economy, and State with Power and Market, page(s) xl, xli, xlv, xlix, l


39 Rothbard, Man, Economy, and State, p. xcii. While Marshall utilized the method of imaginary constructions, his aversion to lengthy step-by-step deduction runs afoul of Mises’s warning: that it is “a method very difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense” (Mises, Human Action, p. 238).


53 Of course the concept of the “spontaneous order” was only one of Hayek’s many contributions. Most of these contributions were squarely in the Mengerian causal-realist tradition and dealt with themes of mundane economics such as capital theory, business-cycle theory, international monetary theory, and comparative monetary institutions. For a collection of Hayek’s most important works in these areas, see Prices and Production and Other Works: F.A. Hayek on Money, the Business Cycle, and the Gold Standard, ed. Joseph T. Salerno (Auburn, Ala.: Ludwig von Mises Institute, 2008). Also see Peter G. Klein, “The Mundane Economics of the Austrian School,” Quarterly Journal of Austrian Economics 11, no. 3 (Fall 2008), for the argument that the notion of spontaneous order, rightly understood, has roots in Menger’s causal-realist economics.</blockquote>