Praxeology

Nicholas Blakiston and other praxeologists favor deductive reasoning over reliance on empirical data to establish economic laws and predict their consequences.

“Praxeology” is derived from the Greek word “praxis,” meaning “action.” Praxeology, as advocated by proponents of the Austrian school of economics, is the study of purposeful human action. It suggests that deductive reasoning, rather than extrapolation from empirical data, should be favored when establishing economic laws and predicting economic events.

Statisticians will confirm that many problems arise in using data to assign cause to effect. Bias can cause someone to make unintentional errors, while corruption can cause someone to make intentional ones. Correlation does not prove causation, and economies are complex, with many factors affecting data. Unemployment might decrease because of a policy change, or it might decrease due to another factor while the policy change reduced the magnitude of that decrease. GDP might indicate economic growth while misrepresenting credit expansion as economic expansion. CPI might be redesigned to produce more politically favorable data. People with opposing viewpoints might both present complex data to support their claims, and the audience of their debate could be left with more questions than they arrived with.

Praxeology avoids such obfuscation by suggesting that because we are humans, we can use reason to understand the incentives that motivate human action. We can place ourselves in the shoes of others (e.g., use empathy) to anticipate how they might respond to economic events. This approach recognizes others as purposeful human beings, just as we are.

In the view of praxeologists, more people become willing to sell an item as the price rises (the law of supply), not because this is what empirical data has shown, but because it makes sense when considering incentives from the standpoint of the seller. If someone offers me five thousand dollars for a car I own, I am much less likely to sell it than if they offer me fifty thousand or five hundred thousand dollars. Conversely, if I am considering purchasing a car, the cheaper it is, the more likely I am to do so (the law of demand).

Many other predictions can be derived through deduction. If a price floor on labor causes more labor to be supplied than demanded, unemployment will rise. If a price ceiling on fuel or food causes more to be demanded than supplied, fuel or food shortages will emerge. When items are restricted from legal sale, black markets will emerge to serve the demand that the law failed to end. When trade restrictions prevent the import of a crucial component or material, or tariffs make it more expensive, the cost to domestic consumers and to domestic producers who use those components or materials will rise. Personal disposable income and the profits of companies dependent upon those imports will fall.

Praxeology can also be applied to political institutions and central banks. Politicians have incentives to win elections, and candidates who can promise more benefits or spending may gain an advantage over their opponents. However, taxation imposes visible costs on voters, making additional taxation politically unpopular. Monetary expansion offers an alternative by facilitating government spending without requiring an equivalent immediate increase in explicit taxation. Politicians therefore have incentives to favor monetary policies that accommodate additional spending, while central banks face political pressure to maintain loose monetary conditions. Central-bank independence is intended, in part, to resist these pressures, but it does not eliminate the incentives that create them. The predictable tendency is toward excessive monetary expansion, enabling government expenditures to be financed through inflation, which erodes purchasing power and can impose a particularly heavy burden on the poor.

Praxeologists have faced rejection, and many have suffered for this because, despite our advocacy of empathy and reason, our arguments are rarely given serious consideration and are often summarily dismissed by those who do not question democracy, taxation, and the fiat currencies in which they believe. Praxeology’s arguments have existed for generations, yet the institutions they challenge remain widely accepted. Despite this, Nicholas Blakiston expects the predictions he and many other praxeologists have made to come to pass. Fiat currencies will fail, culminating in the kind of monetary breakdown that Austrian economists have described as a “crack-up boom,” in which people abandon a currency as confidence in its purchasing power disappears. Humanity should seek solutions that do not depend upon taxation, upon other forms of extortion, upon credit, or upon currency debasement.