Grant McDermott

Assistant Professor
Dept. of Economics
University of Oregon

Privileging theory over evidence

It's late and my brain is in desperate need of sleep, but I've just read something very interesting on the Mises.org blog (via Twitter). In particular, Bob Murphy shapes to provide a takedown of a new book by economic anthropologist, David Graeber, on the true origins of money: Debt: The First 5,000 Years. Bob's motivation appears to stem, in large part, from the awkwardness that Graeber's thesis would imply for adherents of Austrian economics. As he writes in the introduction to his article:
Last week the popular blog "naked capitalism" ran an interview with David Graeber, an "economic anthropologist" whose new book allegedly destroys the standard account of the origin of money. If correct, Graeber's views would prove embarrassing to the Austrian School, because it was none other than Carl Menger who developed the first systematic explanation for how people went from barter to a full-blown monetary economy.
Bob then goes on to summarise Menger's position, before refuting Graeber's challenge in the body of his post... Which is all good and well, except that Graeber has provided an outstanding reply in the comments section, which rather eviscerates the original critique.

Graeber's comment is very long (broken up into six parts), but well worth reading through the whole thing to get a full sense of his arguments. In the interest of being fair to any Austrian readers, at this point I should probably say that $$-$$ as suggested by the quoted text above $$-$$ this is more a matter of pride than a fundamental attack on, say, ABCT. While awkward for Austrian sympathisers, I'm not trying to claim that the possibly of Menger being wrong in this instance serves to invalidate the edifice of Austrian Theory...[*]

That being said, it remains a very interesting topic, especially in these fractious times where the proponents of "hard money" and fiat currency are clawing at each other's throats. More fundamentally, the debate serves to highlight something closer to my own heart: The dangers of privileging theory above evidence.

As Graeber's writes:
As for the supposed refutation of my example of the village where people loan things to one another, no, [Murphy] does not get my argument right at all. First of all, we are not dealing with a situation where people borrow things from one another and expect an equivalent of exactly the same value. I suppose the certain Austrian school theories of human nature assume that's what neighbors in a moneyless economy would do with one another, but again, this just shows a flaw in those theories of human nature, because when tested against the empirical evidence, this is not what one finds.[...]

[snip]

I think the participants in this forum should reflect on what they consider the status of economics to be. Is it a science that generates hypotheses about empirical reality that can then be tested against the evidence, and changed or abandoned if they don’t prove to predict what’s empirically there? Or is it a kind of faith, a revealed Truth embodied in the words of great prophets (such as Van[sic] Mises) who must, by definition be correct, and whose theories must be defended whatever empirical reality throws at them – even to the extent of generating imaginary unknown periods of history where something like what was originally described “must have” taken place?
Well said. I've expressed my scepticism about the extreme a priori approach adopted by certain Austrians before (e.g. here and here). Yes, it's true that we can deduce much about human behaviour and economic systems based on a few key assumptions $$-$$ indeed, all theory aims to do something along those lines. However, I find the notion that these simple axioms provide the foundation for understanding the full complexity of economic activity, without the need for supporting empirical evidence to be... well, nothing short of the pretence of knowledge.

[*] Indeed, from my reading of things, Graeber appears to be refuting Adam Smith's account of the barter economy as much as anyone. Let me also state for the record that I actually look forward to Bob's response. I've seen him stage a comeback before after appearing completely cornered on an issue before, so you never know...