The good folks at bitsharestalk can always be relied upon to provide a solid critique. Their critique of my last post, “Why I am an Austrian Economist - Take 1”, has convinced me it was a terrible post. So I am going to give it a second attempt that I feel is much better at answering the question at hand.

I am an Austrian economist because it is the only theory of economics that is compatible with my mission to find free market solutions to secure the life, liberty, and property of all. To some people this may appear backwards: I am judging a theory by its conclusions. Specifically, I dislike most other mainstream economic theories for the simple reason that they conclude that coercion will increase the wealth of society. If I were to accept their theories as the most representative of the observable facts of life, then I would necessarily have to conclude that my mission is impossible and give up.

Economics is the study of human action and is a science to the extent that it can predict cause and effect. Statements like: “increasing the money supply while holding everything else constant will result in increased prices.” are useful when designing economic incentives to create a particular end. In my case, I am attempting to engineer economic solutions to make the state irrelevant to the security of life, liberty, and property. Any theory that prescribes state or centralized intervention as necessary is not useful for achieving my goals.

My support of Austrian Economics go beyond simply being self serving. In my experience they have been the most reliably predictive theories out there. The Austrians were the ones that had accurately predicted the housing bubble and collapse. They are the ones that reliably predict the disastrous consequences of government intervention. They are the ones that reliably avoid the The Broken Window Fallacy. Only the Austrians can explain the business cycle based upon something more sound than “Animal Spirits”. Specifically, the Austrians reliably predict the negative consequences of adopting policies suggested by mainstream economists.

On the other hand, mainstream economists have dire predictions of what would happen if Austrian economic theories were the basis of policy decisions. Unfortunately, mainstream economists have never given Austrians the opportunity to test their theories and disprove the mainstream economists. This is where projects like BitShares are useful for testing and proving Austrian theories.

Scientific Approach

Because I reject mainstream economists based upon their conclusions many people may suggest I am not being scientific in my approach. A good scientist does not aim to prove a particular result, but to discover the truth without bias. It could be said that my rejection of mainstream economics is not founded in reality and therefore my acceptance of Austrian economics is not well founded.

This is where I am going to get a tad philosophical for a moment. When it comes to reality, what do we really know? We could be living in the Matrix. This could all be a dream or we could be a spec on a clover. From my perspective the only “objective” thing I know is that I am. Everything else might be a really persistent dream; a figment of my super-consiousness. For a better understanding of my take on realtiy, read the article by Steve Pavlina on Subjective Reality.

Given that the existence of objective reality is just as unprovable as subjective reality we are each free to adopt what ever view we find by experimentation to be most beneficial for creating a happy and enjoyable life. In my case I have found the subjective reality perspective to be most useful and thus this is the foundation of everything else.

From a subjective reality perspective everyone is part of one “God Consciousness” and I am but a single avatar, a dream character, unaware of everything “my” super-consciousness is doing. This means that everything out in the world has no need to be in conflict and that any violent conflict is in some sense self created and unnecessary. To change the world I merely have to change myself, or as Gandhi said, “Be the change you want to see in the world”.

From this perspective I can accept non-violence as a fundamental law that if violated is like violating the law of conservation of energy. You know you measured something wrong or made a calculation error if you got more energy out than in. It would imply a perpetual motion machine which most people regard as impossible. In the same way I know that if violence appears to be required I am doing it wrong.

From this perspective, mainstream economics has been falsified by its conclusions in a purely scientific manner where as Austrian economics has not been equally falsified.

Principles Matter

The Austrian approach is one based upon principles and inductive / deductive reasoning based on those principles which are themselves almost self-evident.

Lets start with some basic economic principles I follow:

1. All value is perceived value
2. There is no unit of value
3. An individual can only order (rank) how they value things
4. You cannot compare value judgements among multiple people
5. A price is only valid the instant it happened and only for the parties involved
6. You cannot perform mathematical operations on prices to draw future conclusions
7. Only voluntary trade can reveal relative value of items

There are other basic principles, but these are often enough to identify mistakes made by mainstream economists which inevitably violate one of these principles in subtle, but disastrous ways.

Austrian economics has proven to be the most reliable, useful, and philosophically compatible approach I have found.