Economic Science and the Austrian Method_3

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Hans-Hermann Hoppewhich he can produce most efficientl~ rather than both Aand B producing both goods separately and autonomousl~Or as another example: Whenever minimum wage lawsare enforced that require wages to be higher than existingmarket wages, involuntary unemployment will result.Or as a final example: Whenever the quantity ofmoneyis increased while the demand for money to be held as cashreserve on hand is unchanged, the purchasing power ofmoney will fall.Considering such propositions, is the validation processinvolved in establishing them as true or false of the sametype as that involved in establishing a proposition in thenatural sciences? Are these propositions hypothetical in thesame sense as a proposition regarding the effects of mixingtwo types of natural materials? Do we have to test theseeconomic propositions continuously against observations·?And does it require a never-ending trial and error process inorder to find out the range of application for these propositionsand to gradually improve our knowledge, such as wehave seen to be the case in the natural sciences?It seems quite evident-except to most economists forthe last forty years-that the answer to these questions is aclear and unambiguous No. That A and B must expect toprofit and have reverse preference orders follows from ourunderstanding ofwhat an exchange is. And the same is thecase concerning the consequences ofa coerced exchange. Itis inconceivable that things could ever be different: It wasso a million years ago and it will be so a million years hence.And the range of application for these propositions too isclear once and for all: They are true whenever something isa voluntary exchange or a coerced exchange, and that is allthere is to it.The Ludwig von Mises Institute • 15
Economic Science and the Austrian MethodThere is no difference with respect to the other examplesgiven. That the marginal utility ofadditional units ofsupplyof homogeneous goods must fall follows from the incontestablestatement that every acting person always preferswhat satisfies him more over what satisfies him less. It issimply -absurd to think that continuous testing would berequired to establish such a proposition.The Ricardian law ofassociation, along with a once-andfor-alldelineation of its range of application, also logicallyfollows from the very existence of the situation described.IfA and B differ as described and accordingly there exists atechnological substitution ratio for the goods produced(one such rate for A and one for B), then if they engage ina division of labor as characterized by the law, the physicaloutput produced must be greater than it otherwise wouldbe. Any other conclusion is logically flawed.The same is true regarding the consequences of minimumwage laws or an increase in the quantity of mone~ Anincrease in unemployment and a decrease in the purchasingpower of money are consequences which are logically impliedin the very description ofthe initial condition as statedin the propositions at hand. As a matter offact, it is absurdto regard these predictions as hypothetical and to think thattheir validity could not be established independently ofobservations,i.e., other than by actually trying out minimum wagelaws or printing more money and observing what happens.To use an analogy; it is as ifone wanted to establish thetheorem of Pythagoras by actually measuring sides andangles of triangles. Just as anyone would have to commenton such an endeavor, mustn't we say that to think economicpropositions would have to be empirically tested is a sign ofoutright intellectual confusion?16 • The Ludwig von Mises Institute
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INDEXAlbert, H., 10Andreski, St., 5
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ABOUT THE AUTHORHans..Hermann Hoppe
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