In an article for the Ludwig von Mises institute by the same title as this article, Michael Rozeff attempts to dispel the critics of the Austrian school of economics who point out that its central premise, that man is a rational actor, is a flawed assumption. The piece is an authentication of Mises' ad hoc hypothesis using the fallacy of proof by verbosity—an argument too complex and verbose to reasonably deal with in all its details—and the fallacy of argument from authority, von Mises' own fallacious argument, to sustain it.
Citing Mises in Human Action, Rozeff quotes Mises stating that "Human action is necessarily always rational. The term 'rational action' is therefore pleonastic and must be rejected as such. When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaningless. The ultimate end of action is always the satisfaction of some desires of the acting man."
The statement is a virtual lexicon of rhetorical fallacies. The statement is what is called a psychologists fallacy with a dash of proof by verbosity to dismiss the term "rational action." He then reifies his premise in a textbook example of circular reasoning. Nor was that the end of Mises' use of fallacy to validate his assertion that any act that accomplishes the end result is rational.
Rozeff goes on to quote Mises writing, "However one twists things, one will never succeed in formulating the notion of 'irrational' action whose 'irrationality' is not founded upon an arbitrary judgment of value." This red herring, an ad hominem attack on critics, relies again on the fallacy of argument from authority—von Mises' authority that any disagreement with his premise is fallacious.
The flaw in the argument can pretty readily be demonstrated in an example that is by no means intended to be a direct analog. When someone wishes to silence a baby that is crying places a pillow over the infant's face until it stops, the fact that the dead baby has stopped crying makes the act rational by Mises' standard—and disagreeing with his conclusion of rationality is the imposition of an arbitrary standard.
"Seemingly irrational action is rational, that is, has an aim. To appraise it as irrational, the appraiser merely imposes some other external source of value" was the statement Rozeff made in advance of the last quote from Human Action. Let's consider this in the context of the cause and effect of the "Great Recession," which resulted in the near collapse of the global banking system.
When making sub-prime mortgage loans—and many forget that they also loaned heavily to well qualified buyers in speculative markets—the banks of course intended to maximize profits. Banks after all make money by lending it. It all went wrong though, big time!
Not only were the banks (management) acting rationally by the standards of the Austrian school, as explicated by Mises and Rozeff, because they were acting to attain something they wanted, but it is not reasonable to apply the arbitrary standard of the collapse of the global banking system in assessing the rationality of their actions. Oh, and let's not even go into the fact that something anathematic to the Austrian school resulted. No! Let's go into it!
The Austrians are the foremost critics of Keynesian economics. Therefore, their standard of laissez faire brings their standard of rationality into further question. Not only did the disastrous policies leading to the losses of the banking industry point to the need for greater regulation of the financial industry, but it was only through government intercession that the collapse of the international banking system was averted.
Every indicator points to the Austrian school being just another of the many pseudo sciences of the late 19th Century and early 20th Century. Through its methodology, it ranks right in there with scientific racism, eugenics and Social Darwinism, phrenology, reflexology and iridology. In it's final assessment, it however bears it's greatest kinship with creationism.
The Austrian school of economic thought, through its rejection of scientific method, is essentially just a flawed philosophy with an almost religious analog—and it adherents, believers with no rational argument to sustain it, must engage in pure sophistry to defend it. They are by any rational standard, irrational.
Comments