One of these days I'm going to write my own version of Why I'm not an Austrian Economist. Perhaps after a year or so in graduate school.

As a result of the Austrian's epistemology, they are completely against any sort of model. It's reality or bust. The fact is, they can't do economics without resorting to a model of some sort. Austrians won't admit this - agents are somehow ontologically fundamental entities, so they claim they are studying reality per se. Since they claim to eschew models, Austrians eschew the rigor of mathematics in the models they implicitly create, which just makes things go haywire.

There are a variety of Austrian mistakes related to not understanding that economics (and science in general) is model building. For example, some Austrians claim that neoclassical economics fails because it relies on calculus, which relies on continuity, but humans can't perceive infinitesimal changes. Austrians also rail against aggregation, but, again, that's just because they don't understand that they are building models.

Bryan Caplan published the essay I linked to above in a journal (at least in some form. I haven't read the journal version), and the Austrians responded in force. The two sides have gone back in forth a couple of times. All of their articles, except the original and the first response to caplan, are available for free on mises.org. In their replies, the Austrians do a good job of showing that they don't know probability theory very well. Caplan tries to illustrate why we are uncertain even about logical truths (his example was the pythagorean theorem), and Block doesn't seem to get the point.

I have to note that Hayek wasn't an Austrian in the methodological (i.e. epistemological) sense. If you read his Use of Knowledge in Society closely, you'll see that Hayek is fine with the neoclassical project, he's just telling them to be careful with their models. In particluar, Hayek, who understands the socialist calculation problem better than Mises, tells those on the side of the socialists, sure, you can centrally plan an economy if you know the marginal rates of substitution (MRS) of all goods. From then on out, it's a matter of calibrating your industries to produce the correct amounts. However, that's a big if - you don't know these MRS's, and you never will. The main point that Hayek emphasized is that prices contain all of this information. Some self-proclaimed Austrians reject this point (e.g. Hulsmann) because, and I'm quoting a lecture from memory (it's been a while, so it's definitely not verbatim):

Today's prices only hold information about things that happened in the past. They have no bearing on what that price is going to do in the future, and thus are worthless for making decisions about what to do in the future.(1)

But, of course, today's prices are the most important piece of information for predicting future prices.

(1)He does not mean that prices are irrelevant for finding what something costs, at least at this moment, rather, he means that currents prices tell you nothing about the state of the world in the future, whereas they may tell you a lot about , e.g., whether there was a recent conflict in the middle east (oil prices).

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