Empiricism Is NOT The Answer

The current study of economics in an academic setting is extremely overrun by empiricists. Empiricism is a method of study that involves primarily driving conclusions from what can be observed rather than first principles. Empiricism links the validity of every idea back to observable points of evidence that can be used to support it. While this might sound natural, it is actually a method of reasoning with many extremely negative effects. While empiricists and people deriving things from first principles both have a respect for the underlying language of mathematics and logic, their emphasis on different methods of observation leads to extremely different prescriptions for economic behavior. The Austrian school typically begins from an axiomatic, first principles approach and seeks to explain the world from methods that are both observable and philosophically justifiable. While empiricists claim to not require philosophical justification, as they are remaining at the level of observation, they still inject their own philosophical presuppositions, as the human pursuit of knowledge can never be separated from interpretation. The great advances in empiricism must be paired with a more robust first principles approach, or society, government, and the business world will continually become more dehumanizing as it operates through the aggregative and depersonalizing principles of empiricism.

Pure empiricism dehumanizes, as it reduces humans to observable points of action lacking a rich understanding of what truly occurs within them. Austrian economics understands the individual actor deeply, accounting for the unassailable complexity of human desires and identity, and using these to build a robust base for economic action. Austrian economics can work even with no assumptions made about what a human is or how they act. The common criticism that free market economics promotes selfishness is not true at the most fundamental theoretical level. Ludwig von Mises sees the complexity of each person and does not seek to reduce that, but rather builds his theory of human action upon it. Even when intending to recognize the complexity of the underlying situation, empiricism tends towards functionally, mathematicizing and predicting human action in a way that would not hold up in a first principles focused approach.

As robust as the assumptions are, the empirical method is always limited by the fact that observations occur during a specific place and time. There is no observation so robust that it will necessarily have explanatory power in all other similar situations. Some situations that appear to be similar are so fundamentally different that a desire to apply research from another apparently similar situation would be extremely misguided. The incentive setting can appear to align, the financial conditions can appear to align, but without recognizing the irreducibility of human choice, empiricists fail to understand why their predictions don’t hold up. Real knowledge can be gained through empirical methods, but only with an understanding of the world that steps outside of empiricism, can we understand how we should and should not apply that knowledge. Some observations may be universally applicable, and others may be entirely limited to the situation in which they occurred. The current emphasis within academic economics does not prepare economists to make those decisions.

The fundamental problem facing empiricism is knowledge compression and a lack of robust methods to generalize application of insights. If the incredible observations of empirical economics could be given a stronger philosophical framework, they could unlock far more understanding and creative power. However, the primarily materialistic framework of the modern academic world does not lend itself well to this sort of examination of first principles. To recognize the validity of any unprovable assumptions, one must answer far more difficult metaphysical questions than most in the social sciences are willing to ask. Economists pride themselves in sticking to their discipline, yet the empirical nature of the discipline as it is studied today makes that pride damage their ability to effectively pursue truth in their discipline. Reality will always be far larger than what is observable. In order to pick up on complex patterns, we must try to understand the underlying mechanism rather than merely the external patterns that we can recognize. Not only for a deeper understanding of the truth, but also, because if we do not explicitly name our philosophy, we will operate from one that we did not choose. Empiricists believe that they are free of philosophy and that philosophy is not relevant to their work, but they often operate from half-baked assumptions they were given in high school or by other economics professors. Empiricism needs a more robust philosophy, and that will require a removal of the pure materialist mindset