This article outlines 4 problems with Austrian economics. Specifically, I’m arguing with Mises in 3 cases and in with Kirzner in 1.
1 Not all human action is rational
Depending on how you slice it, my assertion here could be taken as merely semantic or very serious. I agree that human action as described by Mises is necessarily rational. Such action includes conscious and purposeful action.
I disagree wildly that conscious and purposeful action constitutes all actions that humans take. People engage in imperfect planning, unconscious action, and unintended or accidental action. These three categories can be considered on Austrian grounds as semi-rational, irrational, and irrational, respectively. This is not a minor point to be dismissed. People systematically and unevenly engage in rational, semi-rational, and irrational action. Any theory based on the assumption that all action is rational will suffer substantial empirical difficulty.
Another question: Is rationality bounded for Mises? Because it should be if data matters.
2 Economic calculation is not impossible without prices
Market priors allow someone to solve an economic problem without prices, and prices themselves emerge from exchange based on these market priors.
3 You can calculate case probabilities
A maximum-likelihood estimate of any item can be obtained. The tricky part is reducing the error such that substantial confidence or usefulness is gained.
4 Kirznerian Entrepreneurship is an Incorrect Theory of the Entrepreneur
Kirznerian entrepreneurship is an equilibrating behavior which leads to a steady state. It ignores invention and the dynamic specialization of knowledge.
This violates the empirical regularity that small businesses are innovative and the entrepreneur is elsewhere considered an innovative agent. Bull and Willard (1993) consider the Schumpeterian entrepreneur to be an inventor, with somewhat convincing references. They go on to demonstrate an abusive ignorance of Kirzner by equivocating alertness and the ability to invent, among other things.
I’m not saying I’m not an Austrian economist, although I’m certainly not a mainline Austrian and Caplan is the man. I am a big fan of Austrian economics for other reasons I should lay out in another article, but this problems are fo realz. I actually think of these problems as opportunities for advancement or synthesis with other schools. I also want to write an article about holes in Austrian theory. The holes aren’t problems, they’re just missing, but they also present opportunities for improvement or combination.