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  • Writer's pictureSam Wilks

The role of praxeology in Austrian economics and its differences from mainstream economics.

Praxeology and Austrian Economics

Perhaps the most ardent proponent of praxeology, Ludwig Von Mises, proposed that economics should start from the axiom that human actions are purposeful. Individuals act based on their subjective values to achieve desired ends. For Mises, the deductive method of praxeology, grounded in this basic axiom, stands at the core of economic theory.

While Friedrick Hayek acknowledged the value of praxeology, he emphasized the dispersed nature of knowledge in the economy. He thought that centralized economic planning was inherently flawed because central planners could not possibly compile the vast amount of knowledge that individuals held. Prices in a free market, for Hayek, served as a mechanism to convey this decentralized knowledge.

While not a strict Austrian economist, Thomas Sowell's work on knowledge disparities and decision-making complements the Austrian view. He emphasized that decision-making often occurs with fragmented or imperfect information, reinforcing Hayek's idea of dispersed knowledge.

Differences from Mainstream Economics

Subjective Value vs. Objective Metrics: Austrian economics, through praxeology, insists on subjective valuation. Mainstream economics often employs objective metrics and models to predict outcomes, such as utility functions or equilibrium states. The Austrian school argues that these models, while useful, oversimplify or misrepresent real human behavior.

Deductive vs. Empirical Methods: While praxeology uses a deductive approach, starting from the axiom of purposeful action and deducing implications, mainstream economics heavily relies on empirical data and statistical analyses. Milton Friedman, associated with the Chicago School, placed significant emphasis on the empirical testing of economic hypotheses.

Role of Government: Austrian economists generally emphasize the limitations of government intervention in the economy, given the dispersed nature of knowledge and the unpredictable consequences of such intervention. Mainstream contemporary economists are more accepting of government roles, with slight nuances depending on the situation and the specific school of thought within mainstream economics.

Rationality: Mainstream economics often starts with the presumption that rational actors maximize utility. Austrians accept that humans act purposefully but do not always act in ways that outsiders deem 'rational'. For Austrians, what's important is the subjective value and intentionality of the actor, not an externally imposed definition of rationality.

The Austrian school, with its foundation in praxeology, offers a unique perspective on economics that emphasizes individualism, subjective valuation, and the importance of decentralized knowledge. While both Austrian and mainstream economics aim to understand human behavior in the realm of economics, they often differ in methodologies, foundational assumptions, and policy prescriptions.

Mainstream economists have in recent times promoted the "presumption of Virtue" in the intent of a policy, regardless of the damage and harm it does. Whereas Austrian Economists assume that the individual ideologies of all parties promoting policies have "virtuous intent", there is, however, a major difference between "intent" and "outcome".

From the author.

The opinions and statements are those of Sam Wilks and do not necessarily represent whom Sam Consults or contracts to. Sam Wilks is a skilled and experienced Security Consultant with almost 3 decades of expertise in the fields of Real estate, Security, and the hospitality/gaming industry. His knowledge and practical experience have made him a valuable asset to many organizations looking to enhance their security measures and provide a safe and secure environment for their clients and staff.

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