The Long FAQ on Liberalism
A Critique of the Austrian School of Economics:

STATISTICS


According to Llewellyn Rockwell, one of the areas "that distinguishes Austrians from the mainstream is economic statistics. Austrians are critical of the substance of most existing statistical measures of the economy. They are also critical of the uses to which they are put." (1) They do not, of course, believe that statistics are completely without their value, only that this value is slight. Mises wrote:

"If a statistician determines that a rise of 10 per cent in the supply of potatoes in Atlantis at a definite time was followed by a fall of 8 per cent in price, he does not establish anything about what happened or may happen with a change in the supply of potatoes in another country or at another time. He has not 'measured' the 'elasticity of demand' of potatoes. He has established a unique and individual historical fact." (2)

Austrians claim that statistics fail to capture the full dynamism, trends and contradictory forces of the economy. That such a limited statistic might then be used to formulate economic policy is folly. Economic knowledge can only be gained by individuals as they make transactions on the market.

But the argument that a statistic is a one-dimensional historical fact is strained, to say the least. Suppose a private eye tells you that your neighbor is stealing your apples. You respond this is not logically possible. So he produces a photograph of your neighbor in your tree, with a smile and a basket full of apples. And you respond that the value of this photograph is slight, because it does not show the full context, movement and soundtrack of a movie recording!

Needless to say, even photographs can be used to determine context, movement, trends and other phenomena, if only by adding more photographs. Add enough of them, in fact, and the result is a movie.

Austrians also argue that aggregate statistics are worthless because they don't show what's going on in the individual parts. For example, in 1996 the Gross Domestic Product was about $7 trillion. But this included the production of cancer-causing cigarettes as well as cancer-curing medicines, and the productive efforts of the market as well as the destructive efforts of government. Rockwell argues:

"It is not possible to collapse the complexity of market arrangements into enormous aggregates. We cannot, for example, say the economy's capital stock is one big blob summarized by the letter K and put that into an equation and expect it to yield useful information. The capital stock is heterogeneous. Some capital may be intended to create goods for sale tomorrow and others for sale in ten years." (3)

With so many counter-forces and trends, why should these statistics be accepted as meaningful?

A good analogy is the study of gases. They are composed of countless individual molecules, each with different positions, directions, energy levels, etc. Yet early scientists did not study them individually; they studied them collectively. And this approach proved quite useful for producing valuable information, statistics and general laws.

There is an underlying reason why Austrians seek to deny the validity of statistics: if they accepted them, their positions would prove untenable. An example is the fastest period of growth in U.S. history: the New Deal era, from 1933 to 1973. This was also a time of unprecedented government growth, when the top tax rate reached 91 percent. Obviously, these numbers have to be denied.

The only numbers that Austrians trust to any great extent are prices. Other than that, the Austrian school is to be characterized for its innumeracy. One could ask how they even know a business cycle exists, or whether the economic events they are critiquing are even happening. The paradox is that if they can critique accurately, then government can calculate accurately.

Even the Austrian's allies in business would not want to live in a world without statistics. Entrepreneurs have a huge demand for numbers other than prices: for example, Neilson ratings, consumer surveys, price trends, etc. It is the only way they can make enlightened investment decisions. As Libertarian critic Mike Huben points out:

"Business employs two kinds of economists: those who can create and use statistics, and those who can create and apply corporatist propaganda. Guess which the Austrians are..."

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Endnotes:

1. Llewellyn H. Rockwell, Jr. (president and founder of the Ludwig von Mises Institute), "Why Austrian Economics Matters," http://www.mises.org/why_ae.html.

2. Ludwig von Mises, Human Action: A Treatise on Economics (San Francisco: Laissez Faire Books, c. 1949, 1963), pp. 55-56.

3. Rockwell.