Praxeology: The Methodology of Austrian Economics

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From The
Logic
of Action One: Method, Money, and the Austrian School
by
Murray N. Rothbard (Cheltenham, UK: Edward Elgar, 1997), pp. 58–77;
also The
Foundations of Modern Austrian Economics
, Edwin Dolan,
ed. (Kansas City: Sheed and Ward, 1976), pp. 19–39. A .pdf
version is available
for citiation purposes.

Praxeology
is the distinctive methodology of the Austrian school. The term
was first applied to the Austrian method by Ludwig von Mises,
who was not only the major architect and elaborator of this methodology
but also the economist who most fully and successfully applied
it to the construction of economic theory.
[1]
While the praxeological method is, to say the least,
out of fashion in contemporary economics as well as in social
science generally and in the philosophy of science it was the
basic method of the earlier Austrian school and also of a considerable
segment of the older classical school, in particular of J.B. Say
and Nassau W. Senior.
[2]

Praxeology
rests on the fundamental axiom that individual human beings act,
that is, on the primordial fact that individuals engage in conscious
actions toward chosen goals. This concept of action contrasts
to purely reflexive, or knee-jerk, behavior, which is not directed
toward goals. The praxeological method spins out by verbal deduction
the logical implications of that primordial fact. In short, praxeological
economics is the structure of logical implications of the fact
that individuals act. This structure is built on the fundamental
axiom of action, and has a few subsidiary axioms, such as that
individuals vary and that human beings regard leisure as a valuable
good. Any skeptic about deducing from such a simple base an entire
system of economics, I refer to Mises’s Human
Action
. Furthermore, since praxeology begins with a true
axiom, A, all the propositions that can be deduced from this axiom
must also be true. For if A implies B, and A is true, then B must
also be true.

Let us consider
some of the immediate implications of the action axiom. Action
implies that the individual’s behavior is purposive, in short,
that it is directed toward goals. Furthermore, the fact of his
action implies that he has consciously chosen certain means to
reach his goals. Since he wishes to attain these goals, they must
be valuable to him; accordingly he must have values that govern
his choices. That he employs means implies that he believes he
has the technological knowledge that certain means will achieve
his desired ends. Let us note that praxeology does not assume
that a person’s choice of values or goals is wise or proper or
that he has chosen the technologically correct method of reaching
them. All that praxeology asserts is that the individual actor
adopts goals and believes, whether erroneously or correctly, that
he can arrive at them by the employment of certain means.

All action
in the real world, furthermore, must take place through time;
all action takes place in some present and is directed toward
the future (immediate or remote) attainment of an end. If all
of a person’s desires could be instantaneously realized, there
would be no reason for him to act at all. [3] Furthermore, that a man acts
implies that he believes action will make a difference; in other
words, that he will prefer the state of affairs resulting from
action to that from no action. Action therefore implies that man
does not have omniscient knowledge of the future; for if he had
such knowledge, no action of his would make any difference. Hence,
action implies that we live in a world of an uncertain, or not
fully certain, future. Accordingly, we may amend our analysis
of action to say that a man chooses to employ means according
to a technological plan in the present because he expects to arrive
at his goals at some future time.

The fact
that people act necessarily implies that the means employed are
scarce in relation to the desired ends; for, if all means were
not scarce but superabundant, the ends would already have been
attained, and there would be no need for action. Stated another
way, resources that are superabundant no longer function as means,
because they are no longer objects of action. Thus, air is indispensable
to life and hence to the attainment of goals; however, air being
superabundant is not an object of action and therefore cannot
be considered a means, but rather what Mises called a "general
condition of human welfare." Where air is not superabundant,
it may become an object of action, for example, where cool air
is desired and warm air is transformed through air conditioning.
Even with the absurdly unlikely advent of Eden (or what a few
years ago was considered in some quarters to be an imminent "postscarcity"
world), in which all desires could be fulfilled instantaneously,
there would still be at least one scarce means: the individual’s
time, each unit of which if allocated to one purpose is necessarily
not allocated to some other goal. [4]

Such are
some of the immediate implications of the axiom of action. We
arrived at them by deducing the logical implications of the existing
fact of human action, and hence deduced true conclusions from
a true axiom. Apart from the fact that these conclusions cannot
be "tested" by historical or statistical means, there
is no need to test them since their truth has already been established.
Historical fact enters into these conclusions only by determining
which branch of the theory is applicable in any particular case.
Thus, for Crusoe and Friday on their desert island, the praxeological
theory of money is only of academic, rather than of currently
applicable, interest. A fuller analysis of the relationship between
theory and history in the praxeological framework will be considered
below.

There are,
then, two parts of this axiomatic-deductive method: the process
of deduction and the epistemological status of the axioms themselves.
First, there is the process of deduction; why are the means verbal
rather than mathematical logic?
[5]
Without setting forth the comprehensive Austrian case
against mathematical economics, one point can immediately be made:
let the reader take the implications of the concept of action
as developed so far in this paper and try to place them in mathematical
form. And even if that could be done, what would have been accomplished
except a drastic loss in meaning at each step of the deductive
process? Mathematical logic is appropriate to physics — the science
that has become the model science, which modern positivists and
empiricists believe all other social and physical sciences should
emulate. In physics the axioms and therefore the deductions are
in themselves purely formal and only acquire meaning "operationally"
insofar as they can explain and predict given facts. On the contrary,
in praxeology, in the analysis of human action, the axioms themselves
are known to be true and meaningful. As a result, each verbal
step-by-step deduction is also true and meaningful; for it is
the great quality of verbal propositions that each one is meaningful,
whereas mathematical symbols are not meaningful in themselves.
Thus Lord Keynes, scarcely an Austrian and himself a mathematician
of note, leveled the following critique at mathematical symbolism
in economics:

It is a
great fault of symbolic pseudo-mathematical methods of formalizing
a system of economic analysis, that they expressly assume strict
independence between the factors involved and lose all their
cogency and authority if this hypothesis is disallowed: whereas,
in ordinary discourse, where we are not blindly manipulating
but know all the time what we are doing and what the words mean,
we can keep "at the back of our heads" the necessary
reserves and qualifications and the adjustments which we have
to make later on, in a way in which we cannot keep complicated
partial differentials "at the back" of several pages
of algebra which assume that they all vanish. Too large a proportion
of recent "mathematical" economics are mere concoctions,
as imprecise as the initial assumptions they rest on, which
allow the author to lose sight of the complexities and interdependencies
of the real world in a maze of pretentious and unhelpful symbols.
[6]

Moreover,
even if verbal economics could be successfully translated into
mathematical symbols and then retranslated into English so as
to explain the conclusions, the process makes no sense and violates
the great scientific principle of Occam’s Razor: avoiding unnecessary
multiplication of entities.
[7]

Furthermore,
as political scientist Bruno Leoni and mathematician Eugenio Frola
pointed out,

It is often
claimed that translation of such a concept as the maximum from
ordinary into mathematical language, involves an improvement
in the logical accuracy of the concept, as well as wider opportunities
for its use. But the lack of mathematical precision in ordinary
language reflects precisely the behavior of individual human
beings in the real world…. We might suspect that translation
into mathematical language by itself implies a suggested transformation
of human economic operators into virtual robots. [8]

Similarly,
one of the first methodologists in economics, Jean-Baptiste Say,
charged that the mathematical economists

have not
been able to enunciate these questions into analytical language,
without divesting them of their natural complication, by means
of simplifications, and arbitrary suppressions, of which the
consequences, not properly estimated, always essentially change
the condition of the problem, and pervert all its results.
[9]

More recently,
Boris Ischboldin has emphasized the difference between verbal,
or "language," logic ("the actual analysis of thought
stated in language expressive of reality as grasped in common
experience") and "construct" logic, which is "the
application of quantitative (economic) data of the constructs
of mathematics and symbolic logic which constructs may or may
not have real equivalents." [10]

Although
himself a mathematical economist, the mathematician son of Carl
Menger wrote a trenchant critique of the idea that mathematical
presentation in economics is necessarily more precise than ordinary
language:

Consider,
for example, the statements (2) To a higher price of a good,
there corresponds a lower (or at any rate not a higher) demand.

(2′)
If p denotes the price of, and q the demand for, a good, then

q
= f(p) and dq/dp = f’ (p) ≤ 0

Those who
regard the formula (2′) as more precise or "more mathematical"
than the sentence (2) are under a complete misapprehension…
the only difference between (2) and (2′) is this: since (2′)
is limited to functions which are differentiable and whose graphs,
therefore, have tangents (which from an economic point of view
are not more plausible than curvature), the sentence (2) is
more general, but it is by no means less precise: it is of the
same mathematical precision as (2′). [11]

Turning from
the deduction process to the axioms themselves, what is their
epistemological status? Here the problems are obscured by a difference
of opinion within the praxeological camp, particularly on the
nature of the fundamental axiom of action. Ludwig von Mises, as
an adherent of Kantian epistemology, asserted that the concept
of action is a priori to all experience, because it is, like the
law of cause and effect, part of "the essential and necessary
character of the logical structure of the human mind." [12] Without delving too deeply
into the murky waters of epistemology, I would deny, as an Aristotelian
and neo-Thomist, any such alleged "laws of logical structure"
that the human mind necessarily imposes on the chaotic structure
of reality. Instead, I would call all such laws "laws of
reality," which the mind apprehends from investigating and
collating the facts of the real world. My view is that the fundamental
axiom and subsidiary axioms are derived from the experience of
reality and are therefore in the broadest sense empirical. I would
agree with the Aristotelian realist view that its doctrine is
radically empirical, far more so than the post-Humean empiricism
which is dominant in modern philosophy. Thus, John Wild wrote:

It is impossible
to reduce experience to a set of isolated impressions and atomic
units. Relational structure is also given with equal evidence
and certainty. The immediate data are full of determinate structure,
which is easily abstracted by the mind and grasped as universal
essences or possibilities. [13]

Furthermore,
one of the pervasive data of all human experience is existence;
another is consciousness, or awareness. In contrast to the Kantian
view, Harmon Chapman wrote that

conception
is a kind of awareness, a way of apprehending things or comprehending
them and not an alleged subjective manipulation of so-called
generalities or universals solely "mental" or "logical"
in their provenience and non-cognitive in nature.

That
in thus penetrating the data of sense, conception also synthesizes
these data is evident. But the synthesis here involved, unlike
the synthesis of Kant, is not a prior condition of perception,
an anterior process of constituting both perception and its
object, but rather a cognitive synthesis in apprehension, that
is, a uniting or "comprehending" which is one with
the apprehending itself. In other words, perception and experience
are not the results or end products of a synthetic process a
priori, but are themselves synthetic or comprehensive apprehension
whose structured unity is prescribed solely by the nature of
the real, that is, by the intended objects in their togetherness
and not by consciousness itself whose (cognitive) nature is
to apprehend the real — as it is. [14]

If, in the
broad sense, the axioms of praxeology are radically empirical,
they are far from the post-Humean empiricism that pervades the
modern methodology of social science. In addition to the foregoing
considerations, (1) they are so broadly based in common human
experience that once enunciated they become self-evident and hence
do not meet the fashionable criterion of "falsifiability";
(2) they rest, particularly the action axiom, on universal inner
experience, as well as on external experience, that is, the evidence
is reflective rather than purely physical; and (3) they
are therefore a priori to the complex historical events to which
modern empiricism confines the concept of "experience."
[15]

Say, perhaps
the first praxeologist, explained the derivation of the axioms
of economic theory as follows:

Hence the
advantage enjoyed by everyone who, from distinct and accurate
observation, can establish the existence of these general facts,
demonstrate their connection and deduce their consequences.
They as certainly proceed from the nature of things as the laws
of the material world. We do not imagine them; they are results
disclosed to us by judicious observation and analysis….

Political
economy…is composed of a few fundamental principles, and of
a great number of corollaries or conclusions, drawn from these
principles…that can be admitted by every reflecting mind.
[16]

Friedrich
A. Hayek trenchantly described the praxeological method in contrast
to the methodology of the physical sciences and also underlined
the broadly empirical nature of the praxeological axioms:

The position
of man…brings it about that the essential basic facts which
we need for the explanation of social phenomena are part of
common experience, part of the stuff of our thinking. In the
social sciences it is the elements of the complex phenomena
which are known beyond the possibility of dispute. In the natural
sciences they can only be at best surmised. The existence of
these elements is so much more certain than any regularities
in the complex phenomena to which they give rise, that it is
they which constitute the truly empirical factor in the social
sciences. There can be little doubt that it is this different
position of the empirical factor in the process of reasoning
in the two groups of disciplines which is at the root of much
of the confusion with regard to their logical character. The
essential difference is that in the natural sciences the process
of deduction has to start from some hypothesis which is the
result of inductive generalizations, while in the social sciences
it starts directly from known empirical elements and uses them
to find the regularities in the complex phenomena which direct
observations cannot establish. They are, so to speak, empirically
deductive sciences, proceeding from the known elements to the
regularities in the complex phenomena which cannot be directly
established. [17]

Similarly,
J.E. Cairnes wrote:

The
economist starts with a knowledge of ultimate causes. He
is already, at the outset of his enterprise in the position
which the physicist only attains after ages of laborious research….
For the discovery of such premises no elaborate process of induction
is needed… for this reason, that we have, or may have if we
choose to turn our attention to the subject, direct knowledge
of these causes in our consciousness of what passes in our own
minds, and in the information which our senses convey…to us
of external facts.
[18]

Nassau W.
Senior phrased it thus:

The physical
sciences, being only secondarily conversant with mind, draw
their premises almost exclusively from observation or hypothesis….
On the other hand, the mental sciences and the mental arts draw
their premises principally from consciousness. The subjects
with which they are chiefly conversant are the workings of the
human mind. [These premises are] a very few general propositions,
which are the result of observation, or consciousness, and which
almost every man, as soon as he hears them, admits, as familiar
to his thought, or at least, included in his previous knowledge. [19]

Commenting
on his complete agreement with this passage, Mises wrote that
these "immediately evident propositions" are "of
aprioristic derivation…unless one wishes to call aprioristic
cognition inner experience."
[20]

To which
Marian Bowley, the biographer of Senior, justly comments:

The only
fundamental difference between Mises’s general attitude and
Senior’s lies in Mises’s apparent denial of the possibility
of using any general empirical data, i.e., facts of general
observation, as initial premises. This difference, however,
turns upon Mises’s basic ideas of the nature of thought, and
though of general philosophic importance, has little special
relevance to economic method as such.
[21]

It should
be noted that for Mises it is only the fundamental axiom of action
that is a priori; he conceded that the subsidiary axioms of the
diversity of mankind and nature, and of leisure as a consumers’
good, are broadly empirical.

Modern post-Kantian
philosophy has had a great deal of trouble encompassing self-evident
propositions, which are marked precisely by their strong and evident
truth rather than by being testable hypotheses, that are, in the
current fashion, considered to be "falsifiable." Sometimes
it seems that the empiricists use the fashionable analytic-synthetic
dichotomy, as the philosopher Hao Wang charged, to dispose of
theories they find difficult to refute by dismissing them as necessarily
either disguised definitions or debatable and uncertain
hypotheses. [22]

But what
if we subject the vaunted "evidence" of modern positivists
and empiricists to analysis? What is it? We find that there are
two types of such evidence to either confirm or refute a proposition:
(1) if it violates the laws of logic, for example, implies that
A = -A; or (2) if it is confirmed by empirical facts (as in a
laboratory) that can be checked by many persons. But what is the
nature of such "evidence" but the bringing, by various
means, of propositions hitherto cloudy and obscure into clear
and evident view, that is, evident to the scientific observers?
In short, logical or laboratory processes serve to make it evident
to the "selves" of the various observers that the propositions
are either confirmed or refuted, or, to use unfashionable terminology,
either true or false. But in that case propositions that are immediately
evident to the selves of the observers have at least as good scientific
status as the other and currently more acceptable forms of evidence.
Or, as the Thomist philosopher John J. Toohey put it,

Proving
means making evident something which is not evident.
If a truth or proposition is self-evident, it is useless to
attempt to prove it; to attempt to prove it would be to attempt
to make evident something which is already evident. [23]

The action
axiom, in particular, should be, according to Aristotelian philosophy,
unchallengeable and self-evident since the critic who attempts
to refute it finds that he must use it in the process of alleged
refutation. Thus, the axiom of the existence of human consciousness
is demonstrated as being self-evident by the fact that the very
act of denying the existence of consciousness must itself be performed
by a conscious being. The philosopher R.P. Phillips called this
attribute of a self-evident axiom a "boomerang principle,"
since "even though we cast it away from us, it returns to
us again." [24] A similar self-contradiction faces the man who attempts to
refute the axiom of human action. For in doing so, he is ipso
facto a person making a conscious choice of means in attempting
to arrive at an adopted end: in this case the end, or goal, of
trying to refute the axiom of action. He employs action in trying
to refute the notion of action.

Of course,
a person may say that he denies the existence of self-evident
principles or other established truths of the real world, but
this mere saying has no epistemological validity. As Toohey pointed
out,

A man may
say anything he pleases, but he cannot think or
do anything he pleases. He may say he saw a round
square, but he cannot think he saw a round square. He
may say, if he likes, that he saw a horse riding astride its
own back, but we shall know what to think of him if he says
it. [25]

The methodology
of modern positivism and empiricism comes a cropper even in the
physical sciences, to which it is much better suited than to the
sciences of human action; indeed, it particularly fails where
the two types of disciplines interconnect. Thus, the phenomenologist
Alfred Schtz, a student of Mises at Vienna, who pioneered in
applying phenomenology to the social sciences, pointed out the
contradiction in the empiricists’ insistence on the principle
of empirical verifiability in science, while at the same time
denying the existence of "other minds" as unverifiable.
But who is supposed to be doing the laboratory verification
if not these selfsame "other minds" of the assembled
scientists? Schtz wrote:

It is…not
understandable that the same authors who are convinced that
no verification is possible for the intelligence of other human
beings have such confidence in the principle of verifiability
itself, which can be realized only through cooperation with
others. [26]

In this way,
the modern empiricists ignore the necessary presuppositions of
the very scientific method they champion. For Schtz, knowledge
of such presuppositions is "empirical" in the broadest
sense,

provided
that we do not restrict this term to sensory perceptions of
objects and events in the outer world but include the experiential
form, by which common-sense thinking in everyday life understands
human actions and their outcome in terms of their underlying
motives and goals.
[27]

Having dealt
with the nature of praxeology, its procedures and axioms and its
philosophical groundwork, let us now consider what the relationship
is between praxeology and the other disciplines that study human
action. In particular, what are the differences between praxeology
and technology, psychology, history, and ethics — all of which
are in some way concerned with human action?

In brief,
praxeology consists of the logical implications of the
universal formal fact that people act, that they employ means
to try to attain chosen ends. Technology deals with the
contentual problem of how to achieve ends by adoption of
means. Psychology deals with the question of why
people adopt various ends and how they go about adopting
them. Ethics deals with the question of what ends, or values,
people should adopt. And history deals with ends
adopted in the past, what means were used to try to achieve them
— and what the consequences of these actions were.

Praxeology,
or economic theory in particular, is thus a unique discipline
within the social sciences; for, in contrast to the others, it
deals not with the content of men’s values, goals, and
actions — not with what they have done or how they have acted
or how they should act — but purely with the fact that they do
have goals and act to attain them. The laws of utility, demand,
supply, and price apply regardless of the type of goods and services
desired or produced. As Joseph Dorfman wrote of Herbert J. Davenport’s
Outlines
of Economic Theory
(1896):

The ethical
character of the desires was not a fundamental part of his inquiry.
Men labored and underwent privation for "whiskey, cigars,
and burglars’ jimmies," he said, "as well as for food,
or statuary or harvest machinery." As long as men were
willing to buy and sell "foolishness and evil," the
former commodities would be economic factors with market standing,
for utility, as an economic term, meant merely adaptability
to human desires. So long as men desired them, they satisfied
a need and were motives to production. Therefore economics did
not need to investigate the origin of choices. [28]

Praxeology,
as well as the sound aspects of the other social sciences, rests
on methodological individualism, on the fact that only individuals
feel, value, think, and act. Individualism has always been charged
by its critics — and always incorrectly — with the assumption
that each individual is a hermetically sealed "atom,"
cut off from, and uninfluenced by, other persons. This absurd
misreading of methodological individualism is at the root of J.K.
Galbraith’s triumphant demonstration in The
Affluent Society
(Boston: Houghton Mifflin, 1958) that
the values and choices of individuals are influenced by other
persons, and therefore supposedly that economic theory is invalid.
Galbraith also concluded from his demonstration that these choices,
because influenced, are artificial and illegitimate. The fact
that praxeological economic theory rests on the universal fact
of individual values and choices means, to repeat Dorfman’s summary
of Davenport’s thought, that economic theory does "not need
to investigate the origin of choices." Economic theory is
not based on the absurd assumption that each individual arrives
at his values and choices in a vacuum, sealed off from human influence.
Obviously, individuals are continually learning from and influencing
each other. As F.A. Hayek wrote in his justly famous critique
of Galbraith, "The Non Sequitur of the ‘Dependence Effect’":

Professor
Galbraith’s argument could be easily employed, without any change
of the essential terms, to demonstrate the worthlessness of
literature or any other form of art. Surely an individual’s
want for literature is not original with himself in the sense
that he would experience it if literature were not produced.
Does this then mean that the production of literature cannot
be defended as satisfying a want because it is only the production
which provokes the demand?
[29]

That Austrian-school
economics rests firmly from the beginning on an analysis of the
fact of individual subjective values and choices unfortunately
led the early Austrians to adopt the term psychological school.
The result was a series of misdirected criticisms that the latest
findings of psychology had not been incorporated into economic
theory. It also led to misconceptions such as that the law of
diminishing marginal utility rests on some psychological law of
the satiety of wants. Actually, as Mises firmly pointed out, that
law is praxeological rather than psychological and has nothing
to do with the content of wants, for example, that the
tenth spoonful of ice cream may taste less pleasurable than the
ninth spoonful. Instead, it is a praxeological truth, derived
from the nature of action, that the first unit of a good will
be allocated to its most valuable use, the next unit to the next
most valuable, and so on.
[30]
On one point, and on one point alone, however, praxeology
and the related sciences of human action take a stand in philosophical
psychology: on the proposition that the human mind, consciousness,
and subjectivity exist, and therefore action exists. In this it
is opposed to the philosophical base of behaviorism and related
doctrines and joined with all branches of classical philosophy
and with phenomenology. On all other questions, however, praxeology
and psychology are distinct and separate disciplines.
[31]

A particularly
vital question is the relationship between economic theory and
history. Here again, as in so many other areas of Austrian economics,
Ludwig von Mises made the outstanding contribution, particularly
in his Theory
and History
.
[32]
It is especially curious that Mises and other praxeologists,
as alleged "a priorists," have commonly been accused
of being "opposed" to history. Mises indeed held not
only that economic theory does not need to be "tested"
by historical fact but also that it cannot be so tested.
For a fact to be usable for testing theories, it must be a simple
fact, homogeneous with other facts in accessible and repeatable
classes. In short, the theory that one atom of copper, one atom
of sulfur, and four atoms of oxygen will combine to form a recognizable
entity called copper sulfate, with known properties, is easily
tested in the laboratory. Each of these atoms is homogeneous,
and therefore the test is repeatable indefinitely. But each historical
event, as Mises pointed out, is not simple and repeatable; each
event is a complex resultant of a shifting variety of multiple
causes, none of which ever remains in constant relationships with
the others. Every historical event, therefore, is heterogeneous,
and therefore historical events cannot be used either to test
or to construct laws of history, quantitative or otherwise. We
can place every atom of copper into a homogeneous class of copper
atoms; we cannot do so with the events of human history.

This is not
to say, of course, that there are no similarities among historical
events. There are many similarities, but no homogeneity. Thus,
there were many similarities between the presidential election
of 1968 and that of 1972, but they were scarcely homogeneous events,
since they were marked by important and inescapable differences.
Nor will the next election be a repeatable event to place in a
homogeneous class of "elections." Hence no scientific,
and certainly no quantitative, laws can be derived from these
events.

Mises’s radically
fundamental opposition to econometrics now becomes clear. Econometrics
not only attempts to ape the natural sciences by using complex
heterogeneous historical facts as if they were repeatable homogeneous
laboratory facts; it also squeezes the qualitative complexity
of each event into a quantitative number and then compounds the
fallacy by acting as if these quantitative relations remain constant
in human history. In striking contrast to the physical sciences,
which rest on the empirical discovery of quantitative constants,
econometrics, as Mises repeatedly emphasized, has failed to discover
a single constant in human history. And given the ever-changing
conditions of human will, knowledge, and values and the differences
among men, it is inconceivable that econometrics can ever do so.

Far from
being opposed to history, the praxeologist, and not the supposed
admirers of history, has profound respect for the irreducible
and unique facts of human history. Furthermore, it is the praxeologist
who acknowledges that individual human beings cannot legitimately
be treated by the social scientist as if they were not men who
have minds and act upon their values and expectations, but stones
or molecules whose course can be scientifically tracked in alleged
constants or quantitative laws. Moreover, as the crowning irony,
it is the praxeologist who is truly empirical because he recognizes
the unique and heterogeneous nature of historical facts; it is
the self-proclaimed "empiricist" who grossly violates
the facts of history by attempting to reduce them to quantitative
laws. Mises wrote thus about econometricians and other forms of
"quantitative economists":

There are,
in the field of economics, no constant relations, and consequently
no measurement is possible. If a statistician determines that
a rise of 10 percent in the supply of potatoes in Atlantis at
a definite time was followed by a fall of 8 percent in the price,
he does not establish anything about what happened or may happen
with a change in the supply of potatoes in another country or
in another time. He has not "measured" the "elasticity
of demand" of potatoes. He has established a unique individual
historical fact. No intelligent man can doubt that the behavior
of men with regard to potatoes and every other commodity is
variable. Different individuals value the same things in a different
way, and valuations change with the same individuals with changing
conditions. . . .

The impracticability
of measurement is not due to the lack of technical methods for
the establishment of measure. It is due to the absence of constant
relations. . . . Economics is not, as . . . positivists repeat
again and again, backward because it is not "quantitative."
It is not quantitative and does not measure because there are
no constants. Statistical figures referring to economic events
are historical data. They tell us what happened in a nonrepeatable
historical case. Physical events can be interpreted on the ground
of our knowledge concerning constant relations established by
experiments. Historical events are not open to such an interpretation.
. . .

Experience
of economic history is always experience of complex phenomena.
It can never convey knowledge of the kind the experimenter abstracts
from a laboratory experiment. Statistics is a method for the
presentation of historical facts. . . . The statistics of prices
is economic history. The insight that, ceteris paribus,
an increase in demand must result in an increase in prices is
not derived from experience. Nobody ever was or ever will be
in a position to observe a change in one of the market data
ceteris paribus. There is no such thing as quantitative
economics. All economic quantities we know about are data of
economic history. . . . Nobody is so bold as to maintain that
a rise of A percent in the supply of any commodity must always
— in every country and at any time — result in a fall of B percent
in price. But as no quantitative economist ever ventured to
define precisely on the ground of statistical experience the
special conditions producing a definite deviation from the ratio
A:B, the futility of his endeavors is manifest. [33]

Elaborating
on his critique of constants Mises added:

The quantities
we observe in the field of human action . . . are manifestly
variable. Changes occurring in them plainly affect the result
of our actions. Every quantity that we can observe is a historical
event, a fact which cannot be fully described without specifying
the time and geographical point.

The
econometrician is unable to disprove this fact, which cuts the
ground from under his reasoning. He cannot help admitting that
there are no "behavior constants." Nonetheless, he
wants to introduce some numbers, arbitrarily chosen on the basis
of historical fact, as "unknown behavior constants."
The sole excuse he advances is that his hypotheses are "saying
only that these unknown numbers remain reasonably constant through
a period of years." [34] Now whether such a period
of supposed constancy of a definite number is still lasting
or whether a change in the number has already occurred can only
be established later on. In retrospect it may be possible, although
in rare cases only, to declare that over a (probably rather
short) period an approximately stable ratio which the econometrician
chooses to call a "reasonably" constant ratio prevailed
between the numerical values of two factors. But this is something
fundamentally different from the constants of physics. It is
the assertion of a historical fact, not of a constant that can
be resorted to in attempts to predict future events. [35] The
highly praised equations are, insofar as they apply to the future,
merely equations in which all quantities are unknown. [36]

In
the mathematical treatment of physics the distinction between
constants and variables makes sense; it is essential in every
instance of technological computation. In economics there are
no constant relations between various magnitudes. Consequently
all ascertainable data are variables, or what amounts to the same
thing, historical data. The mathematical economists reiterate
that the plight of mathematical economics consists in the fact
that there are a great number of variables. The truth is that
there are only variables and no constants. It is pointless to
talk of variables where there are no invariables. [37]

What, then,
is the proper relationship between economic theory and economic
history or, more precisely, history in general? The historian’s
function is to try to explain the unique historical facts that
are his province; to do so adequately he must employ all the relevant
theories from all the various disciplines that impinge on his
problem. For historical facts are complex resultants of a myriad
of causes stemming from different aspects of the human condition.
Thus, the historian must be prepared to use not only praxeological
economic theory but also insights from physics, psychology, technology,
and military strategy along with an interpretive understanding
of the motives and goals of individuals. He must employ these
tools in understanding both the goals of the various actions of
history and the consequences of such actions. Because understanding
diverse individuals and their interactions is involved, as well
as the historical context, the historian using the tools of natural
and social science is in the last analysis an "artist,"
and hence there is no guarantee or even likelihood that any two
historians will judge a situation in precisely the same way. While
they may agree on an array of factors to explain the genesis and
consequences of an event, they are unlikely to agree on the precise
weight to be given each causal factor. In employing various scientific
theories, they have to make judgments of relevance on which theories
applied in any given case; to refer to an example used earlier
in this paper, a historian of Robinson Crusoe would hardly employ
the theory of money in a historical explanation of his actions
on a desert island. To the economic historian, economic law is
neither confirmed nor tested by historical facts; instead, the
law, where relevant, is applied to help explain the facts. The
facts thereby illustrate the workings of the law. The relationship
between praxeological economic theory and the understanding of
economic history was subtly summed up by Alfred Schtz:

No economic
act is conceivable without some reference to an economic actor,
but the latter is absolutely anonymous; it is not you, nor I
nor an entrepreneur, nor even an "economic man," as
such, but a pure universal "one." This is the reason
why the propositions of theoretical economics have just that
"universal validity" which gives them the ideality
of the "and so forth" and "I can do it again."
However, one can study the economic actor as such and try to
find out what is going on in his mind; of course, one is not
then engaged in theoretical economics but in economic history
or economic sociology. . . . However, the statements of these
sciences can claim no universal validity, for they deal either
with the economic sentiments of particular historical individuals
or with types of economic activity for which the economic acts
in question are evidence. . . .

In our
view, pure economics is a perfect example of an objective meaning-complex
about subjective meaning-complexes, in other words, of an objective
meaning-configuration stipulating the typical and invariant
subjective experiences of anyone who acts within an economic
framework. . . . Excluded from such a scheme would have to be
any consideration of the uses to which the "goods"
are to be put after they are acquired. But once we do turn our
attention to the subjective meaning of a real individual person,
leaving the anonymous "anyone" behind, then of course
it makes sense to speak of behavior that is atypical. . . .
To be sure, such behavior is irrelevant from the point of view
of economics, and it is in this sense that economic principles
are, in Mises’s words, "not a statement of what usually
happens, but of what necessarily must happen." [38]

Notes

[1] See in particular Ludwig von Mises, Human Action:
A Treatise on Economics (New Haven: Yale University Press,
1949); also see Mises, Epistemological
Problems of Economics
, George Reisman, trans. (Princeton,
NJ: Van Nostrand, 1960).

[2] See Murray N. Rothbard, "Praxeology as the
Method of the Social Sciences," in Phenomenology
and the Social Sciences
, Maurice Natanson,ed., 2 vols.
(Evanston: Northwestern University Press, 1973), 2 pp. 323–35
[reprinted in Logic of Action One, pp. 29–58]; also see Marian
Bowley, Nassau
Senior and Classical Economics
(New York: Augustus M.
Kelley, 1949), pp. 27–65; and Terence W. Hutchinson, "Some
Themes from Investigations into Method," in Carl Menger
and the Austrian School of Economics, J.R. Hicks and Wilhelm
Weber, eds. (Oxford: Clarendon Press, 1973), pp. 15–31.

[3] In answer to the criticism that not all action
is directed to some future point of time, see Walter Block,
"A Comment on ‘The Extraordinary Claim of Praxeology’ by
Professor Gutierrez," Theory and Decision 3 (1973):
381–82.

[4] See Mises, Human Action, pp. 101–2; and
esp., Block, "Comment," p. 383.

[5] For a typical criticism of praxeology for not using
mathematical logic, see George. J. Schuller, "Rejoinder,"
American Economic Review 41 (March 1951): 188.

[6] John Maynard Keynes, The
General Theory of Employment, Interest, and Money
(New
York Harcourt, Brace, 1936), pp. 297–98.

[7] See Murray N. Rothbard, "Toward a Reconstruction
of Utility and Welfare Economics," in On Freedom and
Free Enterprise, Mary Sennhoz, ed. (Princeton, NJ: D. Van
Nostrand, 1956), p. 227 [and reprinted in Logic of Action
One]; Rothbard, Man,
Economy, and State
, 2 vols. (Princeton: D Van Nostrand,
1962), 1:65–66. On mathematical logic as being subordinate to
verbal logic, see Rene Poirier, "Logique," in Vocabulaire
technique et critique de la philosophie, Andre Lalande,
ed., 6th ed. Rev. (Paris: Presses Universitaires
de France, 1951), pp. 574–75.

[8] Bruno Leoni and Eugenio Frola, "On Mathematical
Thinking in Economics" (unpublished manuscript privately
distributed), pp. 23–24; the Italian version of this articles
is "Possibilita di applicazione della matematiche alle
discipline economiche," Il Politico 20 (1995).

[9] Jean-Baptiste Say, A
Treatise on Political Economy
(New York: Augustus M.
Kelley, 1964), p. xxvi n.

[10] Boris Ischboldin, "a Critique of Econometrics,"
Review of Social Economy 18, no. 2 (September 1960): 11 N; Ischboldin’s
discussion is based on the construction of I.M. Bochenski, "Scholastic
and Aristotelian Logic," Proceedings of the American
Catholic Philosophical Association 30 (1956): 112–17.

[11] Karl Menger, "Austrian Marginalism and
Mathematical Economics," in Carl Menger, p. 41.

[12] Mises, Human Action, p. 34.

[13] John Wild, "Phenomenology and Metaphysics,"
in The Return to Reason: Essays in Realistic Philosophy,
John Wild, ed. (Chicago: Henrey Regnery, 1953), pp. 48, 37–57.

[14] Harmon M. Chapman, "Realism and Phenomenology,"
in Return to Reason, p. 29. On the interrelated functions
of sense and reason and their respective roles in human cognition
of reality, see Francis H. Parker, "Realistic Epistemology,"
ibid., pp. 167–69.

[15] See Murray N. Rothbard, "In Defense of ‘Extreme
Apriorism,’" Southern Economic Journal 23 (January
1957): 315–18 [reprinted as Volume 1, Chapter 6]. It should
be clear from the current paper that the term extreme apriorism
is a misnomer for praxeology.

[16] Say, A Treatise on Political Economy,
pp. xxv–xxvi, xlv.

[17] Friedrich A. Hayek, "The Nature and History
of the Problem," in Collectivist
Economic Planning
, F.A. Hayek, ed. (London: George Routledge
and Sons, 1935), p 11.

[18] John Elliott Cairnes, The
Character and Logical Method of Political Economy
, 2nd
ed. (London: Macmillan, 1875), pp. 87–88; italics in the original.

[19] Bowley, Nassau Senior, pp. 43, 56.

[20] Mises, Epistemological Problems, p. 19.

[21] Bowley, Nassau Senior, pp. 64–65.

[22] Hao Wang, "Notes on the Analytic-Synthetic
Distinction," Theoria 21 (1995); 158; see also John
Wild and J.L. Cobitz, "On the Distinction between the Analytic
and Synthetic," Philosophy and Phenomenological Research
8 (June 1948): 651–67.

[23] John J. Toohey, Notes on Epistemology,
rev. ed. (Washington D.C.: Georgetown University, 1937), p.
36.; italics in the original.

[24] R.P. Phillips, Modern Thomistic Philosophy
(Westminster, Maryland: Newman Bookshop, 1934–35), 2, pp. 36–37;
see also Murray N. Rothbard, "The Mantle of Science,"
in Scientism and Values, Helmut Schoeck and James W. Wiggins,
ed., (Princeton, NJ: D Van Nostrand, 1960), pp. 162–65.

[25] Toohey, Notes on Epistemology, p. 10.
Italics in the original.

[26] Alfred Schtz, Collected
Papers of Alfred Schtz
, vol. 2, Studies in Social
Theory, A. Brodersen, ed. (The Hague: Nijhoff, 1964), p.
4; see also Mises, Human Action, p. 24.

[27] Alfred Schtz, Collected
Papers of Alfred Schtz
, vol. 1, The Problem of Social
Reality, A. Brodersen, ed. (the Hague, Nijhoff), 1964, p. 65.
On the philosophical presuppositions of science, see Andrew
G. Van Melsen, The Philosophy ofNature (Pittsburgh:
Duquesne University Press, 1953), pp. 6–29. On common sense
as the groundwork of philosophy, see Toohey, Notes on Epistemology,
pp. 74, 106–13. On the application of a similar point of view
to the methodology of economics, see Frank H Knight, "’What
is Truth’ in Economics," in On
the History and Method of Economics
(Chicago: University
of Chicago Press, 1956), pp. 151–78.

[28] Joseph Dorfman, The
Economic Mind in American Civilization
, 5 vols. (New
York: Viking Press, 1949), 3, p. 376.

[29] Friedrich A. Hayek, "The Non Sequitur of
the ‘Dependence Effect,’" in Friedrich A. Hayek, Studies
in Philosophy, Politics, and Economics
(Chicago: University
of Chicago Press, 1967), pp. 314–15.

[30] Mises, Human Action, p. 124.

[31] See Rothbard, "Toward a Reconstruction,"
pp. 230–31.

[32] Ludwig von Mises, Theory
and History
(New Haven: Yale University Press, 1957).

[33] Mises, Human Action, pp. 55–56, 348.

[34] Cowles Commission for Research in Economics,
Report for the Period, January 1, 1948–June 30, 1949
(Chicago: University of Chicago Press, 1949), p. 7, quoted in
Mises, Theory and History, pp. 10–11.

[35] Ibid., pp. 10–11.

[36] Ludwig von Mises, "Comments about the Mathematical
Treatment of Economic Problems" (Cited as "unpublished
manuscript"; published as "The
Equations of Mathematical Economics
" in the Quarterly
Journal of Austrian Economics, vol. 3, no. 1 (Spring 2000),
27–32.

[37] Mises, Theory and History, pp. 11–12;
see also Leoni and Frola, "On Mathematical Thinking,"
pp. 1–8; and Leland B. Yeager, "Measurement as Scientific
Method in Economics," American Journal of Economics
and Sociology 16 (July 1957): 337–46.

[38] Alfred Schtz, The
Phenomenology of the Social World
(Evanston, Ill.: Northwestern
University Press, 1967), pp. 137, 245; also see Ludwig M. Lachmann,
The Legacy of Max Weber (Berkeley, California: Clendessary
Press, 1971), pp. 17–48.

Murray
N. Rothbard (1926–1995), the founder of modern libertarianism
and the dean of the Austrian School of economics, was the author
of The
Ethics of Liberty
and For
a New Liberty
and many
other books and articles
. He was also academic vice president
of the Ludwig von Mises Institute and the Center for Libertarian
Studies, and the editor – with Lew Rockwell – of The
Rothbard-Rockwell Report
.

Murray
Rothbard Archives

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