Power & Market

Is Austrian Economics Ideological?

A common critique, if not outright dismissal of Austrian economics, is that it is "ideological." The connotation is that it is not a reliable framework for analysis, but rather a consistently slanted worldview. What is ideological cannot be a science, because it is by definition anything but neutral to the facts.

This critique always struck me as odd considering the history and theorizing of Austrian economics.

Historically Austrian economics was one of several main streams of economic thought that emanated from the marginalist revolution in the 1870s. While Austrian economists prominently took part in or even instigated important debates in economic theory on the viability of socialism, the role and nature of capital, and on business cycles and unemployment, their arguments were taken seriously by economists and social thinkers who had different views.

Consider, for instance, how Oskar Lange, the prominent market socialist, begins his "On the Economic Theory of Socialism":

Socialists have certainly good reason to be grateful to Professor Mises, the great advocatus diaboli of their cause. For it was his powerful challenge that forced the socialists to recognise the importance of an adequate system of economic accounting to guide the allocation of resources in a socialist economy. Even more, it was chiefly due to Professor Mises' challenge that many socialists became aware of the very existence of such a problem.

If Mises's argument that socialism is not economically viable had been simply "ideological," why would Lange refer to it as a "powerful challenge"? He obviously would not, since ideological rhetoric is not an actual argument. There would have been no reason to take it seriously, even less to think of it as a challenge.

As for the theory, I want to address two separate issues. One is that Austrian economic theory is free market economics. Many misunderstand this as an ideological label, but it is in reality only descriptive of the approach. In order to study the real economy, including the impact of regulations, one must first have a theory of the economy qua economy. That is, a theory of how the market, unhampered by those effects that are to be studied, would work.

The other is the nature of Austrian economic theorizing, which was formalized by Mises as praxeology. In stark contrast to modern inductive approaches, but well in line with how economic theorizing has traditionally been approached, Austrian economics is a purely deductive framework. This means that there are only two ways in which the theory can be deemed inaccurate (or ideological): either the starting point, the action axiom, is an ideological rather than true construct, or the logical derivation from it is consistently slanted to produce ideological rather than true theory.

What this means is that those claiming that Austrian economics is ideological should be able to easily show that (and how) this is the case. Either they must argue that (and how) the action axiom—that human action is purposeful—is not an accurate and true representation of the concept but, in fact, an ideological construct. Or they must point out how and where Austrians' reasoning is flawed, and specifically that the logic is abandoned for ideological reasons. Neither has, to my knowledge, been done (or even attempted).

Substantiating critique of a deductive theory is straightforward. Had Austrian economics been an inductive approach, then there would be a million ways Austrians could let their ideological biases slip into the analyses. It would be easier to do and harder to prove. But since this is not the case, and the inductive method in fact is explicitly rejected by Austrians, critics should find it easy to prove their claims.

That they have not done so suggests they are not able to.

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