Mises Quote of the Day

31 October 2008 at 9:57 am 2 comments

| Peter Klein |

Here is Mises on entrepreneurial “understanding,” a concept distinct from quantitative prediction according to a known model. You could even call it judgment. It’s particularly germane to current economic conditions and the phalanx of economic forecasters attempting to predict how the economy will do in the coming months and years. The source is a 1956 essay, “The Plight of Business Forecasting,” reprinted in Economic Freedom and Interventionism:

Economics can only tell us that a boom engendered by credit expansion will not last. It cannot tell us after what amount of credit expansion the slump will start or when this event will occur. All that economists and other people say about these quantitative and calendar problems partakes of neither economics nor any other science. What they say in the attempt to anticipate future events makes use of specific “understanding,” the same method which is practiced by everybody in all dealings with his fellow man. Specific “understanding” has the same logical character as that which characterizes all anticipations of future events in human affairs — anticipations concerning the course of Russia’s foreign policy, religious and racial conditions in India or Algeria, ladies’ fashions in 1960, the political divisions in the U.S. Senate in 1970; and even such anticipations as the future marital relations between Mr. X and his wife, or the success in life of a boy who has just celebrated his tenth birthday. There are people who assert that psychology may provide some help in such prognostications. However that may be, it is not our task to examine this problem. We have merely to establish the fact that forecasts about the course of economic affairs cannot be considered scientific.

Entry filed under: - Klein -, Austrian Economics, Bailout / Financial Crisis, Entrepreneurship.

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2 Comments Add your own

  • 1. Rafe Champion  |  31 October 2008 at 5:45 pm

    The critique of forecasting has to be balanced by recognition of the possibilites for pattern prediction with cetaris paribus attached, along the lines of IF…..THEN…. (but not necassarily how much and how soon). The natural sciences and the social sciences are in the same boat here, but people were over-impressed by the success of long-term predictions in astronomy, not noticing that the solar system is big clockwork model, like an evenly rotating economy.

  • 2. Rafe Champion  |  31 October 2008 at 11:51 pm

    The difference between legitimate prediction and unscientific prophecy is explained in The Poverty of Hiistoricism, a somewhat confusing classic due to Popper’s eccentric use of “historicism” to cover a whole bundle of defective methods in addition to historical determinism.
    The whole text of the book is on line at Questia, along with a bundle of Hayek books including Hayek on Hayek, Keynes and Hayek (G R Steele), Hayek, Coordination and Evolution (eds Birner and Ziip), Hayek and After (Shearmur), Hayek on LIberty (Gray).

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