June 21, 2023
Do you or a loved one suffer from the mistaken impression that “only Austrians” develop economic theory aprioristically?? I’ve certainly heard this claim. It’s false, though. All good social scientists bring a realistic framework of interpretation that they deploy to make sense of the empirical record and all social scientists bring a framework of interpretation that they deploy to make sense of the empirical record. (Read that sentence again). It’s not a question of theory vs. empirics, but rather of whether good or bad, explicit or implicit theory, is drawn on.
Don’t just take my word for it. Here’s none other than Harold Demsetz in a classic, yet underrated essay on monopoly:
As I tell my students, it’s theory—either explicit or implicit—that constrains economists from including the literal “price of tea in China” in their empirical examinations of the minimum wage. That theory is developed aprioristically because “the facts” don’t “speak” and they don’t “interpret themselves.”
That said, not all apriorism is created equal. Arrow-Hahn-Debreu is aprioristic too. But it lends itself to what Pete Boettke calls “formalistic historicism.” Just about anything can be “derived” by a sufficiently clever theorist with sufficiently sophisticated mathematics. The starting point matters, in other words. Realism in economic theorizing constrains us to, well, reality.