===== PAGE 1 =====

COMMUNICATIONS 943

scheme would probably require a growing share of our GNP: a constant
share invested abroad could probably do no better than to postpone tempo-
rarily an ever-increasing import surplus. If our balance of goods and services
does not or cannot turn passive, defaults will ensue when the gold and other
acceptable means of international payments of the debtor countries are ex-
hausted. As we cannot easily base a policy for tomorrow on a set of expecta-
tions involving the loss by default of the foreign investment we are encour-
aging today, the eventuality of a United States import surplus may have to be
accepted.
ErNEsT BrocH*

* The author is a member of the research department of the Federal Reserve Bank of
New York, and the opinions expressed are his own.

Praxeology: Reply to Mr. Schuller

Rather than prolong my discussion with Mr. Schuller’ unnecessarily by
engaging further in a point-by-point refutation, I think it important to
clarify the nature of praxeology and its applicability to historical events.

The fundamental praxeological axiom is that individual human beings act.
Praxeology reveals the implications of the concept of “action.” Action results
from the fact that the individual “actor” believes that there are other states
of being preferable to the one in which he is at present, and from his belief
that he may take certain steps which will bring him to a more satisfactory
state. Given these preferences and “technological” ideas, the individual acts
upon them in order to arrive at a more satisfactory state. The preferred state
which the actor expects to attain is his “end”; the steps by which the actor
attempts to attain his goal are the “means.”? It is this praxeological concept
of action that distinguishes the observed movements of men from those of
inorganic matter.?

This axiom of action is indisputably an important truth, and must form
the basis for social theory. To deny it would be absurdity. How has our knowl-
edge of the truth of this axiom been attained? In this way: an individual re-
flects, discovers the concept of action and its applicability to all human indi-
viduals, analyzes its components, and then sets it forth orally or by the
written word. Each individual, upon reflecting on the axiom of action, must
agree to its truth and to its importance. It is in this respect that the action
axiom must be “universally recognized as true.”* What name we apply to
this method of obtaining knowledge is basically unimportant and involves

1! American Economic Review, Vol. XL, No. 3 (June, 1950), pp. 418-22; Vol. XLI, No. 1
(Mar., 1951), pp. 181-90.

? Although he did not use the term, Professor Talcott Parsons engaged in profound
praxeological analysis in his Structure of Social Action (Glencoe, Ill, 1949). Cf., especially,
Chapter II, pp. 44-50.

3The difficult case of animal behavior, ranging from the lower organisms to the higher
primates, cannot be discussed here.

* Schuller’s questioning of the validity of the praxeological axioms and procedures on
the basis of the possible inability of the vast majority to grasp them is an old problem
for the physical sciences. How can Einstein’s theory of relativity be true if the mass of
the people cannot understand the demonstration of its validity ? Whatever solution physical
science has developed for this puzzle may be adopted by praxeology as well.


===== PAGE 2 =====

944 THE AMERICAN ECONOMIC REVIEW

irrelevant philosophical problems; thus, it may be called “introspective,” “em-
pirical,” “a priori,” or “reflective.” The important consideration is that it is
certainly a different type of “empiricism” from the study of historical events
and is definitely “a priori” to those events, and that such a situation has no
parallel in the physical sciences. The physical sciences are not in the fortu-
nate position of positively knowing their fundamental axioms. On the other
hand, the physical sciences are in a position to isolate causal factors in ex-
periments. The physical sciences, then, have to arrive at their axioms by
hypothesis and by experimental testing of conclusions deduced from these
hypothecated axioms. In the “social sciences,” the fundamental axioms of
praxeology are known from the beginning, so that substantive conclusions may
be drawn by means of logical deduction. In human historical events, however,
causal factors cannot be experimentally isolated, so that the historian must
explain by the use of judgment which praxeological laws apply in the particu-
lar situation.

Explanation of the réles of praxeological laws and historical judgment or
“understanding” may be provided by the following example: If the supply
of a medium of exchange increases; and if the demand for that medium re-
mains the same; then, the purchasing power of that medium will decline. This
is a praxeological law. How may an historian apply this law? He must first
determine whether or not a decline in purchasing power (increase in prices)
has taken place. This involves difficulties of an historical-statistical nature;
it is not a problem for praxeology or for that elaborated division of it known
as “economic theory” or ‘“catallactics.” Once he has determined that a fall
in purchasing power of the medium has taken place, he searches for an explana-
tion by applying the praxeological-catallactic law. He investigates the histori-
cal situation to discover whether there has been an increase in the supply of
the medium. If he finds a considerable increase in the supply, he is then in
a position to assert three truths:

A. It is an historical fact that the purchasing power of medium X has
declined to such and such an extent.
B. It is an historical fact that the supply of the medium X has increased
to such and such an extent.
C. The praxeological law just mentioned. It is therefore concluded: that
a significant cause of the decline, A, was the increase in supply, B.
If he finds no increase in supply, then he deduces that a fall in demand for
the medium was the cause of the fall in purchasing power.

Such is an example of what is involved in the work of historical explana-
tion. The work of the “economic theorist,” or praxeologist, is to elaborate the
laws (such as C) from the various axioms and according to the rules of logic.
Clearly, neither Mises nor myself has ever cited “facts as if they provided
support for his conclusions and for the axioms, postulates, and logical pro-
cedures.” I cited facts such as “dollar gaps” not as proof or test, but as
illustrations of the workings of praxeological laws in (modern) historical situ-
ations. It is a praxeological law that if the government (or any other agency
exercising the power of violence) intervenes in the market to establish a
valuation of any commodity below what would be the market valuation, a
shortage of the commodity develops. Gresham’s Law is a subdivision of this


===== PAGE 3 =====

COMMUNICATIONS 945

law applied to media of exchange, which, in turn, leads to the explanation of
the “dollar gap.” The historian sees a shortage of dollars in relation to pounds
develop in England, and, using praxeological laws, explains it as the con-
sequence of governmental over-valuation of the pound in relation to the dol-
lar. In no way does he test or “prove” the theory.

How may praxeology be applied to forecasting, to the prediction of future
historical events? The process is essentially that of the historian, except that
the difficulties are greater. Thus, using the above example, the forecaster
may see a considerable increase in the money supply take place. He asserts
B; C he knows as a praxeological truth. In order to forecast the probable
future course of purchasing power, he must make an estimate of the probable
course of the demand for money in the period under consideration. If, on
the basis of his judgment, he decides that the relative change in demand will
be negligible, he is in a position to predict that the purchasing power of the
money unit will decline in that period. With the help of praxeology, his judg-
ment is the best he can offer, but it is still inexact, dependent on the cor-
rectness of his estimates—in this case, of the movement in the demand for
money. If he wishes to make a quantitative estimate of the change in pur-
chasing power, his estimate is still more inexact, for praxeology can be of no help
in this attempt. If his prediction proves erroneous, it is not praxeology that
has failed, but his judgment of the future behavior of the elements in the
praxeological theorem. Praxeology is indispensable, but it does not provide
omniscience. It furnishes laws in the form of: If X, and if Y remains un-
changed, then Z. It is up to the historian, and his counterpart, the forecaster,
to determine the specific cases in which the law is applicable. It should now
be quite clear that there are no praxeological laws of historical development,
and that neither Mises nor myself need “reconcile” any “dilemmas” in setting
forth such a law. If there were, then the task of the historian would be far
easier than it is. Historical events are complex results of numerous causal
factors: praxeologic, psychologic, physical, chemical, biological, etc. The his-
torian must determine which science and its laws apply, and, more difficult,
the extent to which each causal factor operated in the events he is attempting
to explain or predict. Historians will legitimately differ on the order of im-
portance to be attributed to each factor. Thus, various factors, praxeologic-
economic, military, moral, and psychologic might be enumerated as causes
of the Bolshevik Revolution. But there is no exact, scientific way of deciding
the precise extent of importance to be assigned to each factor.

What of the relation between praxeology and economic theory per se? Eco-
nomic theory as has been developed is a component part of praxeology. It
is deduced from the apodictic axiom of action, and most of economic theory,
including the laws and implications of Uncertainty, Time Preference, the
Law of Returns, the Law of Utility, etc. can be deduced directly with no fur-
ther assumptions. With the help of a very small number of subsidiary axioms
which are rather more “empirical” in nature—such as “the disutility of
labor”’—the rest of economic theory can be deduced.

The categories of praxeology may be outlined as follows:

Praxeology—the general, formal theory of human action:
A. The Theory of the Isolated Individual (Crusoe Economics)


===== PAGE 4 =====

946 THE AMERICAN ECONOMIC REVIEW

B. The Theory of Voluntary Interpersonal Exchange (Catallactics,
or the Economics of the Market)
1. Barter
2. With Medium of Exchange
a. On the Unhampered Market
b. Effects of Violent Intervention with the Market
c. Effects of Violent Abolition of the Market (Socialism)
C. The Theory of War—Hostile Action
D. The Theory of Games (e.g., Von Neumann and Morgenstern)
E. Unknown
Clearly, A and B—Economics—is the only fully elaborated part of praxe-
ology. The others are largely unexplored areas.

A concluding word on all the pother about democracy, dictatorship, and
government. Clearly, the praxeologist gua praxeologist cannot advocate any
course of action. As a citizen, however, he may, along with other citizens,
try to decide on the proper course of social policy, and, in making that
decision, he will be likely to use the aid of praxeology and call attention to
its usefulness. For socio-political problems, praxeology presents the citizen
with one great lesson, i.e., that the use of violence for purposes of plunder
injures not only the victim (which is self-evident) but, in the long run, the
plunderer also. The goal of the good citizen, then, is to try to eliminate, or
at least minimize, violent plunder in the society.® The problem of how to ar-
rive at this goal is still unsolved, as a glance at the state of the world today
will make dramatically clear. The great problem is how to convince or per-
suade the would-be plunderer to consult his long-run rather than what he
might interpret as his short-run interests. The traditional laissez-faire solution
was to establish a government that would have an effective monopoly on
the means of violence, and would use these means solely to prevent and punish
attempts at violence within the society. This largely (although not completely)
ended the problem of sporadic social violence, but created a new problem:
quis -custodes custodiet? Who will guard the state itself from using its
effective monopoly of violence for plunder? The most ambitious attempt to
solve this problem was the “Jeffersonian” one—to establish a government that
would be tightly and securely ringed with definite constitutional restrictions
to confine it to its “anti-invasive” function, to instill into the people a spirit
of perpetual vigilant distrust of the government and particularly the ap-
pointed bureaucracy, and to keep the government small and local in order
to permit direct popular control and vigilance. In the light of the history of
the past century, it is possible that this method is impracticable, and that
some other means may have to be found.

Finally, may I state that though I share Schuller’s hope that my interpreta-
tion of Human Action agrees with that of Mises, there is no warrant for any
assumption to that effect.

MURRAY N. ROTHBARD*

5 This is aside from any moral considerations which might also lead the citizen to the
goal of eliminating or minimizing the use of violence.

* The author is research economist, the William Volker Charities Fund, Kansas City,
Missouri.