—–Original Message—–
From: A
Sent: Tue 5/2/2017 6:53 PM
To: Walter Block
Subject: Question about Austrian School economics
Dear Walter, The contention of my current email is that the axioms of praxeology alone are not sufficient for us to make certain definitive conclusions that Austrian School economists make, such as that the minimum wage will necessarily lead to more unemployment. To demonstrate this, I will describe a scenario that is not precluded by the axioms, but under which a minimum wage law will not increase unemployment. Suppose all employers have the following fetish: “hiring people while staring at the congressional record that shows the passage of a minimum wage law.” (The axioms of Austrian economics do not rule out such unconventional preferences.) Then it is possible that after a minimum wage law is enacted, employers will employ more people (while staring at the congressional record) in order to derive more satisfaction associated with their fetish. (Note that the fetish is not merely hiring people. Instead, the additional pleasure is derived from the simultaneously staring at the relevant congressional record and hiring people.) I am not saying this is the case in reality, just that it is not precluded by the axioms alone. Thus, the axioms and logical deduction do not enable us to conclude that minimum wage laws must increase unemployment, ceteris paribus. Note that I am not assuming employers have changed their preferences. They have always had the same fetish; it’s just that they didn’t have the chance to satisfy it before, because there was no relevant congressional record to stare at; now they do. What do you think about this? Thank you very much for your patience! Cheers, A
Dear A: Nice try, but no cigar. The “The axioms of Austrian economics (most certainly) do … rule out such unconventional preferences.” One of these axioms is ceteris paribus. You’ve heard of the joke of the economist and the can opener, surely. We praxeologists do not have the benefits of controlled experiments, so we use logic in general, and ceteris paribus in particular, in cases of this sort. When I teach the claim that the minimum wage necessarily creates unemployment to my freshman students I always try to specify what could go wrong with this. For example, if the wage level is pitched at minus infinity, it will not create unemployment. Or, suppose there is a very rich anti-Austrian who wants to bollix up the works. Whenever the minimum wage law is implemented, he hires unskilled workers at a loss. In making this claim, we Austrians are implicitly assuming profit seeking behavior. Of course this wealthy anti-Austrian can “disprove” our contention. But, we rule this sort of thing out of court, sometimes implicitly, sometimes explicitly. Hey, suppose God decreed that any employer who hired an unskilled worker who’s productivity was $3 per hour, but paid him a minimum wage of $15 per hour would be guaranteed to go to Heaven. This, too, would “ruin” our praxeological contention. Your clever scenario is but yet another case of this sort of bending reality a bit in order to undermine praxeology. Nice try as a I say, but the Austrian theory is invulnerable to that sort of thing. The point is, the assumptions of ceteris paribus, profit seeking behavior, no weirdo scenarios like the above, etc., are also (akin to) praxeological axioms. Otherwise, sure, under these weirdo circumstances, no Austrian would contend that the minimum wage law necessarily creates unemployment.
2:10 pm on May 16, 2017
