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Austrian Economics: Ahead of its Time?

NOVEMBER 12, 2012 by MAX BORDERS

So I'm a closet futurist. Being one, I sometimes find myself checking out sites like Transhumanity.net. I recently came across an article there that does a pretty good job of unpacking the difference between 20th century science and 21st century science.

One of the things I noticed about 21st century science, as characterized, is that it suggests the Austrian School economists were way ahead of their time (that is, if you buy most of Rachel Armstrong's contrasts, which can be found in full here).

Here are some interesting bits of comparison, according to Armstrong:

Reality Framework

20th Century - Cartesian – deals with hierarchies, objects and dualities.

21st Century - Complexity – deals with connections, relationships and webs.

Predictability

20th Century - Deterministic – the future can be predicted by extrapolation.

21st Century - Probabilistic – the future is contingent & always under construction.

Falsifiability

20th Century - Practically falsifiable.

21st Century - Highly complex, contingent and probabilistic, so may be much theoretically falsifiable but much more difficult to practically falsify e.g. Higgs Boson.

Access

20th Century - Exclusive. [Which I read as centralized, closed and managed by elites.]

21st Century - Inclusive.  [Which I read as diverse, experimental, cross-disciplinary and open.]

There are debates about whether or not the social sciences are really sciences at all. Austrian school a priorism can militate against the idea of economics as an empirical science per se. And Hayek, of course, warned us against scientism.

But if we think a little about the different approaches to science (or economics) above, I don't think we can help but conclude that Mises, Hayek and the gang were way ahead of the game. (Contrast variations on Keynesian economics and neoclassical economics, which seem hopelessly mired in 20th century thinking based on Armstrong's characterizations.)

Here's one I worry about, however:

Projections

20th Century - Retrospective – backwards-looking. Evidence acquired from events that have happened.

21st Century - Prospective – forwards-looking. Speculative propositions tested through models and experiment.

I have expressed in these august pages my concerns about speculative models and how they can be used. Of course, we should be more forward looking and imaginative with our theorizing. But we should always be suspicious of scientists and economists bearing models.