On Praxeology and the Praxeological Foundation of Epistemology, Section 2, let me turn to Mises' solution.
says it can only be employed as a means for the attainment of a goal that is considered
less valuable than the least valuable goal previously satisfied by a unit of this good,
or of the quantity theory of money, that whenever the quantity of money is increased, while
the demand for money to be held in cash reserve on hand is unchanged, the purchasing power
of money will fall.
In formulating his answer, Mises faced a double challenge. On the one hand, there was the
answer offered by modern empiricism. The Vienna Ludwig von Mises knew was in fact one of the
early centers of the empiricist movement, a movement which was then on the verge of establishing
itself as the dominant academic philosophy of the Western world for several decades,
and which to this very day shapes the image that an overwhelming majority of economists
have of their own discipline.
Empiricism considers nature and the natural sciences as its model.
According to empiricism, the aforementioned examples of economic
propositions have the same logical status as laws of nature.
Like laws of nature, they state hypothetical relationships between
two or more events, essentially in the form of if-then statements.
And like hypotheses of the natural sciences, the propositions of economics require continual testing vis-à-vis experience.
A proposition regarding the relationship between economic events can never be validated once and for all with certainty.
Instead, it is forever subject to the outcome of contingent future experiences.
Such experience might confirm the hypothesis, but this would not prove the hypothesis to be true,
Since the economic proposition would have used general terms in philosophical terminology universals, in its description of the related events, and thus would apply to an indefinite number of cases or instances, thereby always leaving room for possibly falsifying future experiences, all a confirmation would prove is that the hypothesis had not yet turned out wrong.
On the other hand, the experience might falsify the hypothesis.
This would surely prove that something was wrong with the hypothesis as it stood,
but it would not prove that the hypothesized relationship between the specified events could
never be observed. It would merely show that considering and controlling in one's observations
only what up to now has been actually accounted for and controlled, the relationship had not yet
shown up. It cannot be ruled, however, that it might show up as soon as some other circumstances
have been controlled. The attitude that this philosophy fuels, and that has indeed become
characteristic of most contemporary economists and their way of conducting their business,
is one of skepticism. The motto being, nothing can be known with certainty to be impossible
in the realm of economic phenomena. Even more precisely, since empiricism conceives of economic
phenomena as objective data, extending in space and subject to quantifiable measurement,
In strict analogy to the phenomena of the natural sciences, the peculiar skepticism
of the empiricist economist may be described as that of a social engineer who will not guarantee
anything. The other challenge came from the side of the historicist school. Indeed, during Mises's
life in Austria and Switzerland, the historicist philosophy was the prevailing ideology of the
German-speaking universities and their establishment. With the upsurge of empiricism, this former
and consumer prominence has been reduced considerably. But over roughly the last decade, historicism
has regained momentum among the Western world's academia. Today, it is with us everywhere
under the names of hermeneutics, rhetoric, deconstructionism, and epistemological anarchism.
For historicism, and most conspicuously for its contemporary versions, the model is not
are not nature, but a literary text.
Economic phenomena, according to the historicist doctrine,
are not objective magnitudes that can be measured.
Instead, they are subjective expressions and interpretations unfolding in history
to be understood and interpreted by the economist,
just as a literary text unfolds before and is interpreted by its reader.
As subjective creations, the sequence of their events
follows no objective law. Nothing in the literary text and nothing in the sequence of historical
expressions and interpretations is governed by constant relations. Of course, certain literary
texts actually exist, and so do certain sequences of historical events, but this by no means implies
that anything had to happen in the order it did. It simply occurred. In the same way, however,
as one can always invent different literary stories, history and the sequence of historical
and historical events, too, might have happened in an entirely different way.
Moreover, according to historicism, and particularly visible in its modern hermeneutical version,
the formation of these always contingently related human expressions and their interpretations
is also not constrained by any objective law.
In literary production, anything can be expressed or interpreted concerning everything,
and along the same line, historical and economic events are whatever someone expresses or interprets them to be,
and their description by the historian and economist is then whatever he
expresses or interprets these past subjective events to have been. The
attitude that historicist philosophy generates is one of relativism. Its motto
is everything is possible, unconstrained by any objective law, for the
historicist hermeneutition, history and economics, along with literary criticism,
are matters of aesthetics, and accordingly his output takes on the form
is a form of disquisition on what someone feels about what he feels was felt by somebody else, a literary form which we are only too familiar with, in particular in such fields as sociology and political science.
I trust that one senses intuitively that something is seriously amiss in both the empiricists as well as the historicist philosophies.
Theistemological accounts do not seem to fit even their own self-chosen models, nature
on the one hand, and literary texts on the other.
And in any case, regarding economic propositions such as the law of marginal utility or the
quantity theory of money, their accounts seem to be simply wrong.
The law of marginal utility certainly does not strike one as a hypothetical law, subject
forever for its validation to confirming or disconfirming experiences popping up here
are there, and to conceive of the phenomena talked about in the law as quantifiable magnitudes
seems to be nothing but ridiculous. Nor does the historicist interpretation seem to be
any better. To think that the relationship between the events referred to in the quantity
theory of money can be undone if only one wished to do so seems absurd, and the idea
appears no less absurd that concepts such as money, demand for money, and purchasing
are formed without any objective constraints and refer merely to whimsical subjective creations.
Instead, contrary to the empiricist doctrine, both examples of economic propositions appear to be
logically true and to refer to events which are subjective in nature. And contrary to historicism,
it would seem that what they state then could not possibly be undone in all of history and would
would contain conceptual distinctions, which, while referring to subjective events, were
nonetheless objectively constrained, and would incorporate universally valid knowledge. Like
most of the better-known economists before him, Mises shares these intuitions. Yet in
quest of the foundation of economics, Mises goes beyond intuition. He takes on the challenge
posed by empiricism and historicism in order to reconstruct systematically the basis on
which these intuitions can be understood as correct and justified.
He thereby does not want to help bring about a new discipline of economics, but in explaining
what formerly had only been grasped intuitively, Mises goes far beyond what had ever been done
before.
In reconstructing the rational foundations of the economist's intuitions, he assures
empires us of the proper path for any future development in economics and safeguards us
against systematic intellectual error.
Empiricism and historicism, Mises notes at the outset of his reconstruction, are self-contradictory
doctrines.
The empiricist notion that all events, natural or economic, are only hypothetically related
is contradicted by the message of this very basic empiricist proposition itself.
For if this proposition were regarded as itself being merely hypothetically true, i.e. a hypothetically true proposition regarding hypothetically true propositions, it would not even qualify as an epistemological pronouncement.
For it would then provide no justification whatsoever for the claim that economic propositions are not, and cannot be, categorically a priori true, as our intuition informs us they are.
If, however, the basic empiricist premise were assumed to be categorically true itself, i.e. if we assume that one could say something a priori true about the way events are related, then this would belie its very own thesis that empirical knowledge must invariably be hypothetical knowledge, thus making room for a discipline such as economics, claiming to produce a priori valid empirical knowledge.
Further, the empiricist thesis that economic phenomena must be conceived of as observable
and measurable magnitudes, analogous to those of the natural sciences, is rendered inconclusive
too on its own account, for obviously, empiricism wants to provide us with meaningful empirical
knowledge when it informs us that our economic concepts are grounded in observations.
And yet, the concepts of observation and measurement themselves, which empiricism must employ in
and claiming what it does, are both obviously not derived from observational experience in the sense
that concepts such as hens and eggs or apples and pears are. One cannot observe someone making an
observation or measurement. Rather, one must first understand what observations and measurements are
in order to then be able to interpret certain observable phenomena as the making of an
and Observation, or the Taking of a Measurement. Thus, contrary to its own doctrine, empiricism
is compelled to admit that there is empirical knowledge which is based on understanding,
just as according to our intuitions economic propositions claim to be based on understanding
rather than on observations. And regarding historicism, its self-contradictions are no
less manifest, for if, as historicism claims, historical and economic events, which it conceives
If these other sequences of subjectively understood rather than observed events are not governed by any constant time-invariant relations, then this very proposition also cannot claim to say anything constantly true about history and economics.
Instead, it would be a proposition with, so to speak, a fleeting truth value. It may be true now, if we wish it so, yet possibly false a moment later, in case we do not, with no one ever knowing anything about whether we do or do not.
Yet if this were the status of the basic historicist premise, it too would obviously not qualify as an epistemology.
Historicism would not have given us any reason why we should believe any of it.
If, however, the basic proposition of historicism were assumed to be invariably true,
then such a proposition about the constant nature of historical and economic phenomena
would contradict its own doctrine denying any such constants.
Furthermore, the historicists, and even more so its modern heir, the hermeneuticians, claim that historical and economic events are mere subjective creations, unconstrained by any objective factors, is proven false by the very statement making it.
For evidently a historicist must assume his very statement to be meaningful and true.
He must presume to say something specific about something, rather than merely uttering meaningless sounds like abracadabra.
Yet if this is the case, then clearly his statement must be assumed to be constrained by something outside the realm of arbitrary subjective creations.
Of course, I can say what the historicist says in English, German, or Chinese, or in any other language I wish,
which, insofar as historic and economic expressions and interpretations may well be regarded as
mere subjective creations, but whatever I say in whatever language I choose must be assumed
to be constrained by some underlying propositional meaning of my statement, which is the same
for any language and exists completely independent of whatever peculiar linguistic form may be
in which it is expressed, and contrary to historicists' belief, the existence of such a constraint is not such that one could possibly dispose of it at will, rather it is objective, in that we can understand it to be the logically necessary presupposition for saying anything meaningful at all, as opposed to merely producing meaningless sounds.
The historicist could not claim to say anything if it were not for the fact that his expressions
and interpretations are actually constrained by the laws of logic as the very presupposition
of meaningful statements as such. With such a refutation of empiricism and historicism,
Mises notices, the claims of rationalist philosophy are successfully re-established,
and the case is made for the possibility of a priori true statements as those of economics
seem to be. Indeed, Mises explicitly regards his own epistemological investigations as the continuation
of the work of Western rationalist philosophy. With Leibniz and Kant, he stands opposite the
tradition of Locke and Hume. He sides with Leibniz when he answers Locke's famous dictum,
nothing is in the intellect that has not previously been in the senses, with his equally famous one,
except the intellect itself. And he recognizes his task as a philosopher of economics,
as strictly analogous to that of Kant as a philosopher of pure reason, i.e. of epistemology.
Like Kant, Mises wants to demonstrate the existence of true a priori synthetic propositions,
or propositions whose truth values can be definitively established, even though in order
to do so the means of formal logic are insufficient and observations are unnecessary. My criticism
of imperialism and historicism has proved the general rationalist claim. It has proved that we
indeed do possess knowledge which is not derived from observation and yet is constrained by objective
laws. In fact, our refutation of imperialism and historicism contains such a priori synthetic
knowledge. Yet what about the constructive task of showing that the propositions of economics,
such as the law of marginal utility and the quantity theory of money, qualifies this type
In order to do so, Mises notices, in accordance with the strictures traditionally formulated by rationalist philosophers, economic propositions must fulfill two requirements.
First, it must be possible to demonstrate that they are not derived from observational evidence, for observational evidence can only reveal things as they happen to be.
There is nothing in it that would indicate why things must be the way they are.
Instead, economic propositions must be shown to be grounded in reflective cognition, in our understanding of ourselves as knowing subjects, and secondly, this reflective understanding must yield certain propositions as self-evident material axioms, not in the sense that such axioms would have to be self-evident in a psychological sense, that is, that one would have to be immediately aware of them, or that their truth depends on a psychological feeling of conviction. On the contrary, like Kant before him, Mises very much
Mises stresses the fact that it is usually much more painstaking to discover such axioms
than it is to discover some observational truth, such as that the leaves of trees are green
or that I am six foot two inches.
Rather, what makes them self-evident material axioms is the fact that no one can deny their
validity without self-contradiction, because in attempting to deny them, one already presupposes
their validity.
Mises points out that both requirements are fulfilled by what he terms the axiom of action,
i.e. the proposition that humans act, that they display intentional behavior.
Obviously this axiom is not derived from observation, there are only bodily movements to be observed,
but no such thing as actions, but stems instead from reflective understanding, and this understanding
is indeed of a self-evident proposition, for its truth cannot be denied, since the denial
would itself have to be categorized as an action, but is this not just plain trivial?
And what has economics got to do with this? Of course, it had previously been recognized
that economic concepts such as prices, costs, production, money, credit, etc. had something
to do with the fact that there were acting people, but that all of economics could be
grounded in and reconstructed on the basis of such a trivial proposition, and how is
There is certainly anything but clear. It is one of Mises's greatest achievements to have shown precisely this, that there are insights implied in the psychologically speaking trivial axiom of action that were not themselves psychologically self-evident as well, and that it is these insights which provide the foundation for the theorems of economics as true a priori synthetic propositions. It is certainly not psychologically evident that with every action an actor pursues a goal,
And whatever the goal may be, the fact that it was pursued by an actor reveals that he must have placed a relatively higher value on it than on any other goal of action that he could think of at the start of his action.
It is not evident that in order to achieve his most highly valued goal, an actor must interfere or decide not to interfere, which of course is also an intentional interference, at an earlier point in time, in order to produce a later result.
Nor is it obvious that such interferences invariably imply the employment of some scarce means,
at least those of the actor's body, its standing room, and the time absorbed by the action.
It is not self-evident that these means, then, must also have value, for an actor, a value derived from that of the goal,
because the actor must regard their employment as necessary in order to effectively achieve the goal,
and that actions can only be performed sequentially, always involving a choice, i.e. taking up that one course of action,
which at some given time promises the most highly valued results to the actor, and excluding, at the same time, the pursuit of other, less highly valued goals.
It is not automatically clear that as a consequence of having to choose and give preference to one goal over another,
of not being able to realize all goals simultaneously, each and every action implies the incurrence of costs, i.e. forsaking the value attached to the most highly ranking alternative goal that cannot be realized, or whose realization must be deferred, because the means necessary to attain it are bound up in the production of other, even more highly valued goals, and lastly, it is not evident that at its starting point every goal of action must be considered worth more
to the actor than its cost, and capable of yielding a profit, i.e. a result whose value
is ranked higher than that of the foregone opportunity, and yet that every action is
also invariably threatened by the possibility of a loss if an actor finds in retrospect
that contrary to his expectations, the actually achieved result in fact has a lower value
than the relinquished alternative would have had.
All of these categories, which we know to be the very heart of economics—values, ends,
means, choice, preference, cost, profit and loss—are implied in the axiom of action.
Like the axiom itself, they are not derived from observation.
Rather, that one is able to interpret observations in terms of such categories requires that
one already knows what it means to act.
ividings.
No one who is not an actor could ever understand them, as they are not given ready to be observed,
but observational experience is cast in these terms as it is construed by an actor.
And while they and their interpretations were not obviously implied in the action axiom,
once it has been made explicit that they are implied and how, one no longer has any difficulty
recognizing them as being a priori true in the same sense as the axiom itself is.
For any attempt to disprove the validity of what Mises has reconstructed, as implied in the very concept of action, would have to be aimed at a goal requiring means excluding other courses of action, incurring costs, subjecting the actor to the possibility of achieving or not achieving the desired goal, and so leading to a profit or a loss.
Thus, it is manifestly impossible to ever dispute or falsify the validity of Mises' insights.
In fact, a situation in which the categories of action would cease to have a real existence
could itself never be observed or spoken of, since to make an observation and to speak
are themselves actions.
All true economic propositions, and this is what praxeology is all about and what Mises'
can be deduced by means of formal logic from this incontestably true material knowledge regarding the meaning of action and its categories.
More precisely, all true economic theorems consist of
a. an understanding of the meaning of action
b. a situation or situational change assumed to be given or identified as being given and described in terms of action categories
and C, a logical deduction of the consequences, again in terms of such categories, which are to result for an actor from this situation or situational change.
The law of marginal utility, for instance, follows from our indisputable knowledge of the fact that every actor always prefers what satisfies him more over what satisfies him less, plus the assumption that he is faced with an increase in the supply of a good.
A scarce means, whose units he regards as of equal serviceability by one additional unit.
From this it follows, with logical necessity, that this additional unit can then only be employed as a means for the removal of an uneasiness that is deemed less urgent than the least valuable goal previously satisfied by a unit of such a good.
Provided there is no flaw in the process of deduction, the conclusions which economic theorizing yields,
no different in the case of any other economic proposition from the case of the law of marginal utility,
must be valid a priori. These propositions' validity ultimately goes back to nothing but the indisputable axiom of action.
To think, as empiricism does, that these propositions require continual empirical testing for their validation
is absurd and a sign of outright intellectual confusion, and it is no less absurd and confused
to believe, as historicism does, that economics has nothing to say about constant and invariable
relations, but merely deals with historically accidental events. To say so meaningfully is to
prove such a statement wrong, as saying anything meaningful at all already presupposes acting
and a knowledge of the meaning of the categories of action.