Ludwig von Mises was one of the most prominent economists of his day. Still, for the most of his career Mises’s methodology was somewhat out of sync with the rest of the profession. By the time he had published his first major work presenting his methodological views, 1933’s Epistemological Problems of Economics, the economics profession was attempting to move closer to the methods of natural sciences. In other words, logical positivism, which states that science needs to be built up by the experimental method, was becoming the main trend. In order for economics to become a science, it needed to follow the methods of falsification employed by the natural sciences, such as physics.
Mises wholly rejected this notion. As he explained in his 1942 essay “Social Science and Natural Science,” originally published in the Journal of Social Philosophy and Jurisprudence (Vol. 7, No. 3), while he was working for the National Bureau of Economic Research, the social and natural sciences require different methods. Economics is a human science that derives laws that take into account the complexity of human experience. These laws have the same status as the laws of the natural sciences, but due to the complexity of human action different methods are needed to derive them.
This position of methodological apriorism was not completely new to Mises, it was also the approach of the earlier Austrian tradition emphasized by Carl Menger and Eugen Boehm-Bawerk. Experiments are very important to the natural sciences but as Mises explains, “the social sciences cannot make use of experiments. The experience with which they have to deal is the experience of complex phenomena… The social sciences never enjoy the advantage of observing the consequences of a change in one element only, other conditions being equal.” So, unlike in a laboratory, economists cannot verify their statements using experience.
But by the 1950s, however, the economics profession had followed Paul Samuelson’s lead, rather than Mises’s, using the methods of formalism and positivism. Formalism had become synonymous with logical rigor and positivistic testing was the only means of conducting empirical analysis. To not follow in this direction was considered unscientific. By the 1960s economists had come to distance themselves from the exact laws of Menger and the apriorism of Mises. Indeed, with the exception of a handful of Austrian followers, they had become things of the past.
Today many have come to misinterpret the Austrian position on the role of theory and history in economics. Perhaps due to the fact that economics has become dominated by what many have called “physics envy”, most are ignorant of what Mises’s position truly was. The caricature of the position seems to be that Austrian theory places no importance on empirical analysis. In fact, empirical work is completely rejected and thus ignored. Nothing could be further from the truth.
The role of empirical analysis is still very important, but you cannot treat statistical findings in the real world as you would treat a laboratory experiment. Material provided by statistics is the outcome of historical complex forces. Thus theory is necessary to aid historical investigations. As Mises said, “There is no doubt that up to now in history only nations which have based their social order on private ownership of the means of production have reached a somewhat high stage of welfare and civilization. Nevertheless, nobody would consider this an incontestestable refutation of socialist theories.” The advancement of economics requires blending of both deduction in theory and empirical induction.
There is no doubt the profession has steered away from aprioristic approach. It is born out of the confusion over the role knowledge plays within economic theory. Austrian economics has an important place in better understanding of this problem. More economists should take the time to read the methodological work of Mises and the Austrians.