Eighty years ago, the American economist Paul Samuelson published his acclaimed doctoral dissertation “The Observation Significance of Economic Theory,” which would later form the basis of his book Foundations of Economic Analysis. These works were instrumental in convincing the majority of economists that the use of mathematical and statistical methods are the indispensable means of investigating economic phenomena. Any economist who objects to the “Samuelsonian consensus” is derisively referred to as a literary economist. The literary economist is not really an economist at all because he refuses to use the superior methods delineated by Samuelson and other mathematical economists. To the mathematical economists, the Austrians are the vanguard of literary economics and thus not authentic economists; they are aberrant logicians who obstinately cling to anachronistic methods, which have been rendered defunct by the advent of quantitative economic methods.
Yet, this was not always the case. Before empiricism-positivism swept through the economics discipline, virtually all economists conceived of economic theory as a purely deductive framework. Indeed, Lionel Robbins’ book The Nature and Significance of Economic Science, which was first published in 1932, is essentially praxeology in all but name, and it was heralded as the gold standard of economic methodology for almost twenty years. In his preface, Robbins expresses his intellectual indebtedness to Ludwig von Mises, whom he identifies as the foremost influence on his own methodological position.
Moreover, while mathematical economics can be traced back to the marginal revolution of the 1870s, it was not, as aforementioned, until Paul Samuelson’s treatise appeared in 1947 that the quantitative approach usurped the traditional qualitative approach – the approach to economics propounded so eloquently by Carl Menger in his 1871 Principles of Economics. Clearly, then, the qualitative economics practiced by the Austrians is not a mere idiosyncrasy peculiar to the Austrian school; it was once the dominant methodology.
The fundamental defect of quantitative, mathematical economics is manifest. Quantitative analysis implies the possibility of measurement, but measurement implies relating something to a standard. Without a standard, there is no measurement. In the realm of economic phenomena, there are no standards and, therefore, there can be no measurement. Mises has poignantly articulated this point, “There are, in the field of economics, no constant relations, and consequently no measurement is possible.”
Menger postulated that all economic phenomena are ultimately caused by the purposive actions of individuals. But there is no objective, fixed standard for measuring the minds and values of men; they are not perfectly predictable inanimate objects, but conscious actors with minds of their own. In short, there is no constancy in the province of human behavior. Accordingly, mathematical economics is nothing but an epistemologically sterile exercise in symbolism. It cannot yield explanations of economic phenomena and has contributed nothing but confusion and intellectual incoherence to the science of economics.
In sum, the absence of empirical constants precludes the fruitful use of mathematics in economic theorizing. Contrary to the prevailing doctrine, economics is not an empirical, a posteriori science—it is a deductive, a priori science. The whole corpus of economic theory can be deduced from the axiom of purposeful human behavior. And since it is strictly impossible to derive true economic propositions from the use of mathematics, the attempt to do so can produce nothing but empirically redundant formalisms. The adoption of mathematical economics by the great body of economists represents a profound regression in our economic understanding, and it is the noble endeavor of the Austrians to oppose this inherently unscientific and perverse doctrine.
