Predictive Value of Austrian Claims

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    Hello, at a recent Students for Liberty conference I unintentionally found myself arguing with David Friedman about economic methodology. Even though he’s not an Austrian, he’s still brilliant and I’m just a student who already ingested a couple of cocktails so he pretty much wiped the floor with me. He specifically asked me to name one distinctively Austrian claim that does not require empirical evidence to have meaningful predictive value. I brought up the socialist calculation argument as articulated by Mises as an example of one such claim, but he dismissed it by responding that without empirical evidence we would know very little about the effect that the lack of a price mechanism has on socialist economies in reality (ie whether their efficiency would only be reduced by a small percent or whether the whole system would inevitably collapse). In retrospect I could have also used the example of the Austrian Business Cycle Theory but it seems like he would have had a similar objection to that example. Any tips on ways to effectively respond to this critique in the future?


    If by “predict” what Friedman means is “give relatively accurate quantitative magnitudes for certain economic variables in the future” then no Austrian economist has denied that such prediction requires empirical knowledge. As Mises put it, such prediction is based on “thymology” which is a blending together of economic theory (which is universal truths about cause and effect relationships in human action and can be known a priori) and the relevant contingent features of the particular case to be predicted (which can be known only by experience).

    If by “predict” what one means is “give accurate qualitative changes for certain economic variables in the future” then theory can be sufficient. One could have accurately predicted the reduction in farm output from the Soviet collectivization of agriculture without knowing anything from experience about such events. In theory we can stipulate particular contingent factors and abstractly deduce what will occur under the stipulation.

    What should be asked of Friedman is to name any prediction with meaningful predictive value made by an economist who accepts the empirical-hypothesis testing method that does not require abstraction in the formulation of its model.


    Just a note: It seems your encounter (or a similar one) has created a bit of a stir with David Friedman in the comments on Bob Murphy’s blog where it seems to me he’s asking the same question posted here.


    Yup, Friedman is definitely referring to the same encounter. I’m glad that a larger, more valuable discussion has grown out of it, and the responses of Professor Herbener and Robert Murphy are characteristically illuminating.

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