In Search of “Good” Economics: Friedman, Mises, and Heyne

   

I am grateful to Richard, David, and Mario for their thoughtful and insightful contributions to discussion. It is a grave understatement to say I am honored by the opportunity to contribute.

The first draft of my response to Richard's essay included a discussion and consideration of the Milton Friedman quotation that there was no such thing as Austrian economics but only good economics and bad economics.. However, I decided—having not been there in the first place to hear the quotation in context—that mine probably wasn't the best perspective on what Friedman had said or how he said it. Since all of my interlocutors have referenced the 'pot-shot heard round the world,' I have decided that I might offer another perspective on the remark.

Following what the late Daniel Dennett called “Rapoport’s Rules,” I want to offer my most charitable criticism of Friedman (Dennett 2013, pp 33-36). There is an interpretation of Friedman’s words in which he is unambiguously right. It does not matter whether your economics is Austrian or not—if it is good economics. And a corollary, it does not matter whether your economics is Austrian or not—if it is bad economics. This is likely not the purest sense in which Friedman meant his remark, but I want to be as charitable as possible to what I think Friedman was trying to say, not necessarily what he said.

Where do I find agreement with Friedman? I agree with him that there really is only good economics and bad economics. While one can find all manner of logical and philosophical distinctions among our various approaches to economic science and the art of political economy, this is the only distinction that truly matters.

In his response essay, David recounts Frances Hazlitt's incisive wit in wondering whether Friedman would agree there is also no Chicago school. It seems to me that an intellectually honest Friedman would probably agree with Frances. Or, in parallel formulation, It does not matter whether your economics is Chicagoan or not—if it is good economics; and it does not matter whether your economics is Chicagoan or not—if it is bad economics. The “Chicago” school, method, or approach is just one way to try to do good economics and avoid doing bad economics—so, too, with Austrian economics. I think that Friedman and I would find agreement here. Perhaps, I am also willing to admit, many others would find this goes too far.

But what are “good economics” and “bad economics” anyway? It is a hollow agreement if we do not have a definition of what counts for “good” or “bad” economics. By not defining them—maybe we are all just supposed to know them when we see them—Friedman has probably smuggled in some assumptions or presuppositions with which any of us might take issue.

One possibility is that Friedman is making an intentionally harsh methodological point, in line with his essay “The Methodology of Positive Economics.” (Friedman 1966, pp 3-43) Under this interpretation, insofar as Austrian economics drifts from this positivist approach, it is a non-entity in the realm of positive economic science and is only incidentally “good” economics. This interpretation is possible and perhaps one to which Friedman would assent. It is just not the interpretation I want to believe, and it is far too uncharitable on Friedman’s behalf.

Nevertheless, it is a possible interpretation and one with some precedent. I have long seen a parallel between Friedman’s remark and the following from Ludwig von Mises’s Human Action:

This quotation arises in Mises’s defense and extrapolation of his aprioristic method of economics, particularly against rival ‘schools’ of economic science. Mises, it seems, does not even allow for the existence of “bad” economics; things outside the proper method are not even economics!

Instead of either extreme methodological commitment—Friedmanite positivism on the one hand or Misesian apriorism on the other—is there a middle ground consensus for “good” economics? Perhaps Frédéric Bastiat?

Henry Hazlitt wholeheartedly agrees with Bastiat. It seems reasonable that one is a good economist by doing good economics; and so good economics seems to be that which allows the practitioner to see beyond the obvious results of something to its unintended, often counterintuitive consequences.

Someone is doing good economics, then, when he or she is able to see the spontaneous order that is the product of individual action and the producer of social outcomes. In other words, good economics is economics which uses what Paul Heyne called the economic way of thinking: “All social phenomena emerge from the choices of individuals in response to expected benefits and costs to themselves.” (Heyne 2008, p 294, emphasis original) It is what Peter Boettke calls ‘the persistent and consistent application of opportunity cost reasoning’ in understanding individual choice and an attention to the results of human action that go well beyond humans’ capacity for design.

“Good” economics is not a litmus test for methodological purity. It is a way to perceive and understand the fascinating depths of human cooperation in a world of strangers. “Good” economics, then, is a little more Capitalism and Freedom and Free to Choose and a little less Essays in Positive Economics. It’s a little more Liberalism and Planning for Freedom and a little less Epistemological Problems of Economics.