Economic Prediction: Irving Fisher and Ludwig von Mises

Abstract

Economists in general are now in trouble with the public.1 With some very, very rare exceptions, we have not predicted the latest depression; nor does our profession seem to be able to clearly fore-cast when (oh when) we will put the present malaise behind us.

To be sure, there are a few members of our profession who have seen their way clearly in this regard.2 But, it is the contention of this paper that they have not done so qua economists. Rather, they have taken on the role of entrepreneurs, a not totally unrelated field of endeavor.

Economic prediction takes the following form: if A occurs, then B will be higher (lower)3 than it otherwise would have been. One difficulty about peering into the future in this regard in terms of pin point precision, is that we never know, in advance, whether or not A will occur. All too often this turns on the results of an elec-tion, or, from which side of the bed various politicians, bureaucrats and other such denizens exit.

For example, consider the following:

If a minimum wage law is implemented (or its level raised), then unemployment for unskilled workers will be higher than oth-erwise would have been the case.4

If the money stock in circulation in increased by the central bank, prices will be higher than they otherwise would have been.

If government imposes a tariff, then economic welfare will fall below the level that otherwise would have obtained.

First, economists have no comparative advantage in knowing, ahead of time, whether a minimum wage, a chance in the money stock or a trade barrier will occur. Second, and far more important, economic law necessarily compares a real state of affairs with a hypothetical one that would have taken place had the initial change, or phenomena, not occurred. Thus, even if professional economists full well know the antecedent, they cannot predict, qua economists, what will then result. At best, we can only offer a contrast with a hypothetical situation which never existed.

Let us now turn from these relatively simple economic laws to those concerning depressions, recessions, the business cycle, etc., which are far more complex.