ȀȂȇ Partʺ: Economicshave roles to play in theorizing, but economists should recognize when
they are inapplicable. In understanding money/macro phenomena and in
building bridges between macro and micro economics, it is essential to
recognize that sellers are in generalnotpure price takers and that they are
not already selling all of their product or of their labor that they want to
sell at the prevailing price. In macroeconomics it is important to recognize
that most prices aresetand not impersonally determined by the interplay
of atomistic supply and demand.
Ļe Austrians’ concern for facts of reality is often overlooked because
of their supposed insistence on apurely a priorimethod. Ļis term, notably
as used by Ludwig von Mises, unfortunately invites misinterpretation. So
used,a priorisuggests an unintended sharp contrast withempirical. Mises
did not mean that all important propositions of economic theory can be
spun out of factually empty logical truisms. He relied, rather, on axioms
for which factual evidence constantly presses itself on us so abundantly
that we can hardly imagine a world to which those axioms did not apply
(cf. RothbardȀȈȄȆ). Austrians do not—or should not—confine the hon-
orific term “empirical” to propositions dug out by arduous labor and of
doubtful general validity after all.
In related respects, Austrians are more realistic than self-congratulat-
ing “empirical” researchers. Ļey open their eyes to what sorts of method
have and what sorts have not brought important results. Ļey look at the
facts bearing on whether or not stable functions exist that quantitatively
and dependably describe relations among economic magnitudes and that
might be relied on for forecasting. Ļey are at least as ready as other econ-
omists to accept the facts that call into question overambitious, activist,
fine-tuning policies whose success presupposes knowing durable quanti-
tative relations.
Ŏśśřş, şŘšřŜş, ōŚŐ ŏśŚŠōœŕśŚ
What explains the recessions that interrupt prosperity from time to time?Ȅ
Each recession is a specific historical event. Researchers have the job of
investigating each one, asking whether many of them share some dom-
inant feature and discarding hypotheses that do not fit the facts. It is
ȄI may seem to give unsuitably less attention to inflation than recession. Ļe reason is
not complacency; on the contrary, I am something of an antiinflation hawk. Ļe reason
is that the theory of money and price inflation is straightforward and well understood.
Incomprehensibility is not the reason why impecunious governments so often disregard it.