The housing boom and subsequent financial crisis, recession, and weak recovery, as well as Ron Paul’s presidential candidacy, have put the Austrian school of economics in the public spotlight, particularly among the intellectual class in the media and on the Internet. This increased attention has also meant increased criticism. One frequent charge is that Austrian economics is radically anti-empirical and cares little about putting its theories up against the reality of the world.
This criticism often focuses on Austrians’ use of “praxeology” as their term for economics. Some Austrians do indeed talk about the “a priori” nature of praxeology and how the theories it produces, such as the Austrian business cycle theory, cannot be “tested” by empirical data, which they contrast with the “apodictic certainty” of certain of their own conclusions. Such claims can be found in the work of the 20th century Austrians, such as Ludwig von Mises and, particularly, Murray Rothbard. (It is worth noting that this way of talking about Austrian theory is mostly absent in the work of F. A. Hayek.)
But it is not the case, as Josh Barro recently argued, “that Austrian economists reject empirical analysis, and instead believe that you can reach conclusions about correct economic policies from a priori principles.” To say so is to misinterpret what Mises meant by the word praxeology and therefore fail to understand what he recommended as the appropriate methods for economists. It is also to rely on interpretations of what people like Mises and Rothbard had to say, as well as the pronouncements of various advocates of Austrian economics on blogs and Internet forums, rather than engaging with the professional research being published in the peer-reviewed journals by practicing Austrians. That research offers a very different picture of the way in which Austrian economics engages the real world. Finally, as that research demonstrates, modern Austrians distinguish among...