Economic Science and the Austrian Method_3

Economic Science and the Austrian MethodThe quantity theory of money then cannot render anyspecific economic event, certain or probable, on the basis ofa formula employing prediction constants. However, thetheory would nonetheless restrict the range of possiblycorrect predictions. And itwould do this not as an empiricaltheor~ but rather as a praxeological theor~ acting as alogical constraint on our prediction-making. 38 Predictionsthat are not in line with such knowledge (in our case: thequantity theory) are systematically flawed and making themleads to systematically increasing numbers of forecastingerrors,. This does not mean that someone who based hispredictions on correct praxeological reasoning would necessarilyhave to be a better predictor of future economicevents than someone who arrived at his predictions throughlogically flawed deliberations and chains of reasoning. Itmeans that in the long run the praxeologically enlightenedforecaster would average better than the unenlightenedones.It is possible to make the wrong prediction in spite ofthe fact that one has correctly identified the event "increasein the money supply" and in spite of one's praxeologicallycorrect reasoning that such an event is by logical necessityconnected with the event "drop in the purchasing power ofmone)!." For one might go wrong predicting what will occurto the event "demand for mone)!." One may have predicteda constant demand for mone~ but the demand might actuallyincrease. Thus the predicted inflation might not showup as expected. And on the other hand, it is equally possiblethat a person could make a correct forecast, Le., there willbe no drop in purchasing power, in spite ofthe fact that he380n the logic of social and economic forecasting, see also Hoppe, "InDefense ofExtreme Rationalism," sections 3, 4.46 • The Ludwig von Mises Institute