Hans Herman Hoppe on Empiricism

The Mises Institute has recorded audio books of several of it’s publications. They have been publishing some of them on their podcast. I listened to some of Murray Rothbard’s Conceived in Liberty (text version) and found his account of Purtian New England very interesting. The most recent book on the podcast is Hans Herman Hoppe’s Economic Science and the Austrian Method (text version).

Hoppe’s book is an explanation and defense of the Austrian method of economics, as opposed to all other methods. What distinguishes Austrianism is that it is not empirical. It is rational, or as Mises put it, a priori. Hoppe quotes Mises explanation:

Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification and falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts. They are a necessary requirement of any intellectual grasp of historical events.

Hoppe further explains the situation:

It is this assessment of economics as an a priori science, a science whose propositions can be given a rigorous logical justification, which distinguishes Austrians, or more precisely Misesians, from all other current economic schools. All the others conceive of economics as an empirical science, as a science like physics, which develops hypotheses that require continual empirical testing. And they all regard as dogmatic and unscientific Mises’s view that economic theorems?like the law of marginal utility, or the law of returns, or the time-preference theory of interest and the Austrian business cycle theory?can be given definite proof, such that it can be shown to be plainly contradictory to deny their validity.

Hoppe then begins a critique of empiricism, especially in regards to economics.

Moreover, even if we have observed some definite outcome, let’s say that mixing the two materials leads to an explosion, can we then be sure that such an outcome will invariably occur whenever we mix such materials? Again, the answer is no. Our predictions will still, and permanently, be hypothetical. It is possible that an explosion will only result if certain other conditions?A, B, and C?are fulfilled. We can only find out whether or not this is the case and what these other conditions are by engaging in a never-ending trial and error process. This enables us to improve our knowledge progressively about the range of application for our original hypothetical prediction.

…the Ricardian law of association…minimum wage… marginal utility…

Considering such propositions, is the validation process involved in establishing them as true or false of the same type as that involved in establishing a proposition in the natural sciences? Are these propositions hypothetical in the same sense as a proposition regarding the effects of mixing two types of natural materials? Do we have to test these economic propositions continuously against observations? And does it require a never-ending trial and error process in order to find out the range of application for these propositions and to gradually improve our knowledge, such as we have seen to be the case in the natural sciences?

To use an analogy, it is as if one wanted to establish the theorem of Pythagoras by actually measuring sides and angles of triangles. Just as anyone would have to comment on such an endeavor, mustn’t we say that to think economic propositions would have to be empirically tested is a sign of outright intellectual confusion?

He continues in part II:

According to empiricism, to explain causally or predict a real phenomenon is to formulate a statement of either the type “if A, then B” …

As a statement referring to reality (with A and B being real phenomena), its validity can never be established with certainty, that is, by examining the proposition alone, or of any other proposition from which the one in question could be logically deduced. The statement will always be and always remain hypothetical, its veracity depending on the outcome of future observational experiences which cannot be known in advance. Should experience confirm a hypothetical causal explanation, this would not prove that the hypothesis was true. Should one observe an instance where B indeed followed A as predicted, it verifies nothing. A and B are general, abstract terms, or in philosophical terminology, universals, which refer to events and processes of which there are (or might be, in principle) an indefinite number of instances. Later experiences could still possibly falsify it.

And if an experience falsified a hypothesis, this would not be decisive either. For if it was observed that A was not followed by B, it would still be possible that the hypothetically related phenomena were causally linked. It could be that some other circumstance or variable, heretofore neglected and uncontrolled, had simply prevented the hypothesized relationship from actually being observed. At the most, falsification only proves that the particular hypothesis under investigation was not completely correct as it stood. It needs some refinement, some specification of additional variables which have to be watched for and controlled so that we might observe the hypothesized relationship between A and B. But, to be sure, a falsification would never prove once and for all that a relationship between some given phenomena did not exist, just as a confirmation would never definitively prove that it did exist.

He also notes:

However appropriate the empiricist ideas may be in dealing with the natural sciences (and I think they are inappropriate even there, but I cannot go into this here), [25] it is impossible to think that the methods of empiricism can be applicable in the social sciences.

**Update: I see that I’m getting some traffic from the Czech Republic. A helpful supplement to this post is an essay by John W. Robbins regarding economic methodology, analyzing Mises and Friedman, among others: The Failure of Secular Economics and an MP3 lecture of the same: The Failure of Secular Economic Theory (MP3)

Nazi Counterfeiters and the Fed

I started reading Tim Challie’s “The Discipline of Spiritual Discernment” last night. It starts out with a story about how the Nazi’s used Jewish printers to make perfect counterfeits of the British pound. Their plan was to print millions of counterfeit pounds and then introduce the new money supply into the system and they called it Operation Bernhard. They decided the most effective method would be to drop it from airplanes over Britain.
What’s the point of that you might ask? Why wouldn’t they just use it to buy stuff? The goal was not to fund their war (as a new film might lead you to believe http://www.apple.com/trailers/sony/thecounterfeiters/trailer/). The goal was to destroy the British economy, and the U.S. was next. How would counterfeit money destroy the British economy? Inflation. The Nazis wanted to introduce so much counterfeit money into the money supply that the British pound would be worthless. It was a fairly brilliant strategy, but they ran out of time to drop the printed counterfeits over Britain.

The reason I bring this up is because the Nazis are condemned for such an idea, but here in the homeland, the same strategy is praised as genius. The vast majority of Americans believe that the President and his minions have the power, and the duty, to manage the economy for the benefit of the people. The Federal Reserve is called upon to help in this scheme. They control the amount of money in circulation by altering the rate at which they print money and issue central bank notes.

The problem is that for some reason, people don’t see what the Nazi’s apparently did. If you just print more paper currency, you will destroy its value. Apparently its bad when Nazis do it because Nazis are evil, but its a saving grace when Bernanke does it, because the United States Government is good.

Coming Soon: Indiana Jones V: Return of the Counterfeiters
co-starring Ron Paul

A Nazi Counterfeit in the National Bank

Gas station owner told to raise prices


MERRILL, Wis. – A service station that offered discounted gas to senior citizens and people supporting youth sports has been ordered by the state to raise its prices.

Center City BP owner Raj Bhandari has been offering senior citizens a 2 cent per gallon price break and discount cards that let sports boosters pay 3 cents less per gallon.

But the state
Department of Agriculture, Trade and Consumer Protection says those deals violate Wisconsin’s Unfair Sales Act, which requires stations to sell gas for about 9.2 percent more than the wholesale price.

Bhandari said he received a letter from the state auditor last month saying the state would sue him if he did not raise his prices. The state could penalize him for each discounted gallon he sold, with the fine determined by a judge.

Bhandari, who bought the station a year ago, said he worries customers will think he stopped the discounts because he wants to make more money. About 10 percent of his customers had used the discount cards.

Dale Van Camp said he bought a $50 card to support the local youth hockey program. It would have saved him about $100 per year on gas, he said.


Anyone who has received the recent round of “Gas-Out” emails, please read below.

“A few years ago, March 2000 in fact, I came across an e-mail that was impossibly dumb. It called for a “Gas-Out.” The idea was to boycott gasoline for a few days. This action would drive the price of gas down, and at the same time, it would show “Big Oil” that if they tried to raise prices again, we’d hurt them…. If people want to protest high gas prices, there are things they can do. They can call for getting rid of gas taxes, for opening up drilling rights, for freely trading with all countries that supply oil, and for eliminating regulatory restraints on production. In short, they can call for a free market, the only means by which gas will end up being priced no more or less than it should be.”

Gas-Out Redux http://www.mises.org/story/1191

The Path to Lower Gas Prices: Free Trade http://www.mises.org/story/2008

Gas Prices Fact or Fiction: A Primer on Supply and Demand http://www.mises.org/story/1936