Building Arguments

The Austrian school of economics is unique in the field largely due to its reliance on deductive reasoning over empiricism. This doesn’t mean that empirical evidence has no value, only that it is used to confirm rather than develop hypotheses. The use of deductive reasoning led the early leaders of the Austrian school to develop theories in marginal utility, time preference, and the business cycle.

The advantage to such an approach is consistent, logic based argumentation; it is difficult to counter a contention when it is built on soundly applied logic. With sound reasoning, policy decisions can be prescribed with confidence not in their predictive nature but in the certainty that they are pointed in the correct direction.

Since Ludwig von Mises, Austrian economic theory has been grounded in what he termed “praxeology,” the science of human action. With the individual as the starting point, the tendencies of individual action lead the Austrian economist to develop broader economic theory. The fact that an item possessed today is of greater value than the same item possessed tomorrow, for example, enabled Austrian economists to develop theories of interest as it relates to time. These theories could then further be extrapolated, logically, to show how interference with interest rates creates false signals regarding individual time preferences and ultimately leads to mistakes in investment. These mistakes cause the business cycle. The most complex theories put forth by economists of the Austrian school can all be traced back, logically, to the actions of individuals.

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