The Long FAQ on Liberalism
A Critique of the Austrian School of Economics:
According to Llewellyn Rockwell, one of the areas "that distinguishes
Austrians from the mainstream is economic statistics. Austrians
are critical of the substance of most existing statistical measures
of the economy. They are also critical of the uses to which they
are put." (1) They do not, of course, believe that statistics
are completely without their value, only that this value is slight.
"If a statistician determines that a rise of 10 per cent
in the supply of potatoes in Atlantis at a definite time was followed
by a fall of 8 per cent in price, he does not establish anything
about what happened or may happen with a change in the supply
of potatoes in another country or at another time. He has not
'measured' the 'elasticity of demand' of potatoes. He has established
a unique and individual historical fact." (2)
Austrians claim that statistics fail to capture the full dynamism,
trends and contradictory forces of the economy. That such a limited
statistic might then be used to formulate economic policy is folly.
Economic knowledge can only be gained by individuals as they make
transactions on the market.
But the argument that a statistic is a one-dimensional historical
fact is strained, to say the least. Suppose a private eye tells
you that your neighbor is stealing your apples. You respond this
is not logically possible. So he produces a photograph of your
neighbor in your tree, with a smile and a basket full of apples.
And you respond that the value of this photograph is slight, because
it does not show the full context, movement and soundtrack of
a movie recording!
Needless to say, even photographs can be used to determine context,
movement, trends and other phenomena, if only by adding more photographs.
Add enough of them, in fact, and the result is a movie.
Austrians also argue that aggregate statistics are worthless because
they don't show what's going on in the individual parts. For example,
in 1996 the Gross Domestic Product was about $7 trillion. But
this included the production of cancer-causing cigarettes as well
as cancer-curing medicines, and the productive efforts of the
market as well as the destructive efforts of government. Rockwell
"It is not possible to collapse the complexity of market
arrangements into enormous aggregates. We cannot, for example,
say the economy's capital stock is one big blob summarized by
the letter K and put that into an equation and expect it to yield
useful information. The capital stock is heterogeneous. Some capital
may be intended to create goods for sale tomorrow and others for
sale in ten years." (3)
With so many counter-forces and trends, why should these statistics
be accepted as meaningful?
A good analogy is the study of gases. They are composed of countless
individual molecules, each with different positions, directions,
energy levels, etc. Yet early scientists did not study them individually;
they studied them collectively. And this approach proved quite
useful for producing valuable information, statistics and general
There is an underlying reason why Austrians seek to deny the validity
of statistics: if they accepted them, their positions would prove
untenable. An example is the fastest period of growth in U.S.
history: the New Deal era, from 1933 to 1973. This was also a
time of unprecedented government growth, when the top tax rate
reached 91 percent. Obviously, these numbers have to be denied.
The only numbers that Austrians trust to any great extent are
prices. Other than that, the Austrian school is to be characterized
for its innumeracy. One could ask how they even know a business
cycle exists, or whether the economic events they are critiquing
are even happening. The paradox is that if they can critique accurately,
then government can calculate accurately.
Even the Austrian's allies in business would not want to live in a world
without statistics. Entrepreneurs have a huge demand for numbers other
than prices: for example, Neilson
ratings, consumer surveys, price trends, etc. It is the only way they
can make enlightened investment decisions. As Libertarian critic Mike Huben
"Business employs two kinds of economists: those who can create and use
statistics, and those who can create and apply corporatist propaganda.
Guess which the Austrians are..."
Next Section: Methodological Subjectivism
Return to Main Page
1. Llewellyn H. Rockwell, Jr. (president and founder of the
Ludwig von Mises Institute), "Why Austrian Economics Matters,"
2. Ludwig von Mises, Human Action: A Treatise on Economics
(San Francisco: Laissez Faire Books, c. 1949, 1963), pp. 55-56.