WEBVTT NOTE Praxeology and Economic Science: I 1 00:00:00.000 --> 00:00:05.520 Economic Science and the Austrian Method by Hans-Hermann Hoppe 2 00:00:05.520 --> 00:00:12.960 Praxeology and Economic Science, Section 1. It is well known that Austrians disagree strongly 3 00:00:12.960 --> 00:00:18.640 with other schools of economic thought, such as the Keynesians, the monetarists, the public choicers, 4 00:00:18.640 --> 00:00:25.200 historicists, institutionalists, and Marxists. Disagreement is most conspicuous, of course, 5 00:00:25.200 --> 00:00:31.600 When it comes to economic policy and economic policy proposals, at times there also exists 6 00:00:31.600 --> 00:00:37.840 an alliance between Austrians and in particular Chicagoites and public choicers. Ludwig von Mises, 7 00:00:37.840 --> 00:00:44.000 Murray N. Rothbard, Milton Friedman and James Buchanan, to cite a few names, are often united 8 00:00:44.000 --> 00:00:49.680 in their efforts to defend the free market economy against its liberal and socialist detractors. 9 00:00:49.680 --> 00:00:55.680 Nonetheless, as important as such occasional agreements may be for tactical or strategic 10 00:00:55.680 --> 00:01:00.360 reasons, they can only be superficial, for they cover up some truly fundamental differences 11 00:01:00.360 --> 00:01:05.640 between the Austrian School, as represented by Mises and Rothbard, and all the rest. The 12 00:01:05.640 --> 00:01:10.200 ultimate difference, from which all disagreements at the levels of economic theory and economic 13 00:01:10.200 --> 00:01:14.800 policy, disagreements for instance as regards the merit of the gold standard versus fiat 14 00:01:14.800 --> 00:01:20.240 fiat money, free banking vs. central banking, the welfare implications of markets vs. state 15 00:01:20.240 --> 00:01:27.080 action, capitalism vs. socialism, the theory of interest and the business cycle, etc. concerns 16 00:01:27.080 --> 00:01:31.320 the answer to the very first question that any economist must raise. 17 00:01:31.320 --> 00:01:37.400 What is the subject matter of economics, and what kind of propositions are economic theorems? 18 00:01:37.400 --> 00:01:43.640 Mises' answer is that economics is the science of human action. 19 00:01:43.640 --> 00:01:49.040 In itself this may not sound very controversial, but then Mises says of the science of economics, 20 00:01:49.040 --> 00:01:52.800 its statements and propositions are not derived from experience. 21 00:01:52.800 --> 00:01:56.840 They are like those of logic and mathematics a priori. 22 00:01:56.840 --> 00:02:03.680 They are not subject to verification and falsification on the ground of experience and facts. 23 00:02:03.680 --> 00:02:10.020 They are both logically and temporally antecedent to any comprehension of historical facts. 24 00:02:10.020 --> 00:02:16.260 They are a necessary requirement of any intellectual grasp of historical events. 25 00:02:16.260 --> 00:02:21.340 In order to emphasize the status of economics as a pure science, a science that has more 26 00:02:21.340 --> 00:02:26.540 in common with a discipline-like applied logic than, for instance, with the empirical natural 27 00:02:26.540 --> 00:02:32.900 sciences, Mises proposes the term praxeology, the logic of action, for the branch of knowledge 28 00:02:32.900 --> 00:02:35.540 exemplified by economics. 29 00:02:35.540 --> 00:02:40.460 It is this assessment of economics as an a priori science, a science whose propositions 30 00:02:40.460 --> 00:02:46.540 can be given a rigorous logical justification, which distinguishes Austrians, or more precisely 31 00:02:46.540 --> 00:02:50.740 Missesians, from all other current economic schools. 32 00:02:50.740 --> 00:02:55.420 All the others conceive of economics as an empirical science, as a science like physics, 33 00:02:55.420 --> 00:03:01.380 which develops hypotheses that require continual empirical testing, and they all regard as dogmatic 34 00:03:01.380 --> 00:03:06.680 Strict and unscientific, Mises's view that economic theorems like the Law of Marginal 35 00:03:06.680 --> 00:03:12.380 Utility or the Law of Returns or the Time-Preference Theory of Interest and the Austrian Business 36 00:03:12.380 --> 00:03:18.820 Cycle Theory can be given definite proof, such that it can be shown to be plainly contradictory 37 00:03:18.820 --> 00:03:19.820 to deny their validity. 38 00:03:19.820 --> 00:03:26.320 The view of Mark Blaug, highly representative of mainstream methodological thought, illustrates 39 00:03:26.320 --> 00:03:29.620 this almost universal opposition to Austrianism. 40 00:03:29.620 --> 00:03:35.860 Blaug says of Mises, his writings on the foundations of economic science are so cranky and idiosyncratic 41 00:03:35.860 --> 00:03:39.820 that one can only wonder that they have been taken seriously by anyone. 42 00:03:39.820 --> 00:03:44.540 Blaug does not provide one argument to substantiate his outrage. 43 00:03:44.540 --> 00:03:48.460 His chapter on Austrianism simply ends with that statement. 44 00:03:48.460 --> 00:03:53.740 Could it be that Blaug's and others' rejection of Mises's a priorism may have more to do 45 00:03:53.740 --> 00:03:58.900 with the fact that the demanding standards of argumentative rigor which an a priorist 46 00:03:58.900 --> 00:04:02.820 What Mises' methodology implies proved too much for them. 47 00:04:02.820 --> 00:04:08.800 What led Mises to his characterization of economics as an a priori science? 48 00:04:08.800 --> 00:04:13.620 From the present-day perspective, it might be surprising to hear that Mises did not see 49 00:04:13.620 --> 00:04:18.860 his conception as out of line with the mainstream view prevailing in the early 20th century. 50 00:04:18.860 --> 00:04:23.220 Mises did not wish to prescribe what economists should be doing as opposed to what they actually 51 00:04:23.220 --> 00:04:24.220 were doing. 52 00:04:24.220 --> 00:04:37.220 Rather, he saw his achievement as a philosopher of economics in systematizing and in making explicit what economics really was and how it had implicitly been conceived by almost everyone calling himself an economist. 53 00:04:37.220 --> 00:04:45.220 And this is indeed the case. In giving a systematic explanation of what was formerly only implicit and unspoken knowledge, 54 00:04:45.220 --> 00:04:53.220 Mises did introduce some conceptual and terminological distinctions that had previously been unclear and unfamiliar, at least to the English-speaking world. 55 00:04:53.220 --> 00:04:54.220 World. 56 00:04:54.220 --> 00:04:58.180 But his position on the status of economics was essentially in full agreement with the 57 00:04:58.180 --> 00:05:00.400 then-Orthodox view on the matter. 58 00:05:00.400 --> 00:05:05.540 They did not employ the term a priori, but such mainstream economists as Jean-Baptiste 59 00:05:05.540 --> 00:05:11.700 Say, Nassau Sr., and John E. Cairns, for instance, described economics quite similarly. 60 00:05:11.700 --> 00:05:17.420 Say writes, A treatise on political economy will be confined to the enunciation of a few 61 00:05:17.420 --> 00:05:22.340 general principles, not requiring even the support of proofs or illustrations, because 62 00:05:22.340 --> 00:05:32.340 There will be but the expression of what every one will know, arranged in a form convenient for comprehending them, as well as in their whole scope as in their relation to each other. 63 00:05:32.340 --> 00:05:43.340 And, political economy, whenever the principles which constitute its basis are the rigorous deductions of undeniable general facts, rests upon an immovable foundation. 64 00:05:43.340 --> 00:06:13.340 According to Nassau Sr., economic premises consist of a few general propositions, the result of observations, or consciousness, and scarcely requiring proof or even formal statement, which almost every man, as soon as he hears them, admits as familiar to his thoughts, or at least as included in his previous knowledge, and his inferences are nearly as general, and if he has reasoned correctly, as certain as his premises, and economists should be aware that the science depends more on reasoning than 65 00:06:13.340 --> 00:06:18.860 and an Observation, and that its principal difficulty consists not in the ascertainment 66 00:06:18.860 --> 00:06:22.700 of its facts, but in the use of its terms. 67 00:06:22.700 --> 00:06:27.580 And John E. Cairns remarks that while mankind has no direct knowledge of ultimate physical 68 00:06:27.580 --> 00:06:32.480 principles, the economist starts with a knowledge of ultimate causes. 69 00:06:32.480 --> 00:06:38.600 The economist may thus be considered at the outset of his researches as already in possession 70 00:06:38.600 --> 00:06:44.000 of those ultimate principles governing the phenomena which form the subject of his study, 71 00:06:44.000 --> 00:06:49.200 the discovery of which, in the case of physical investigation, constitutes for the inquirer 72 00:06:49.200 --> 00:06:55.960 his most arduous task. Injecture in economics would manifestly be out of place, inasmuch 73 00:06:55.960 --> 00:07:01.520 as we possess in our consciousness and in the testimony of our senses direct and easy 74 00:07:01.520 --> 00:07:07.800 proof of that which we desire to know. In political economy accordingly, hypothesis 75 00:07:07.800 --> 00:07:13.400 is never used as a help toward the discovery of ultimate causes and laws. 76 00:07:13.400 --> 00:07:19.380 The views of Mises' predecessors, Menger, Boehm-Bawerk, and Wieser, are the same. 77 00:07:19.380 --> 00:07:24.680 They too describe economics as a discipline whose propositions can, in contrast to those 78 00:07:24.680 --> 00:07:27.680 of the natural sciences, be given some ultimate justification. 79 00:07:27.680 --> 00:07:33.420 Again, however, they do so without using the terminology employed by Mises. 80 00:07:33.420 --> 00:07:40.440 And finally, Mises's epistemological characterization of economics was also considered quite orthodox 81 00:07:40.440 --> 00:07:45.200 and certainly not idiosyncratic as Blaug would have it, after having been explicitly formulated 82 00:07:45.200 --> 00:07:46.200 by Mises. 83 00:07:46.200 --> 00:07:51.400 Lionel Robbins's book, The Nature and Significance of Economic Science, which first appeared 84 00:07:51.400 --> 00:07:56.800 in 1932, is nothing but a somewhat watered down version of Mises's description of economics 85 00:07:56.800 --> 00:08:02.760 as praxeology, yet it was respected by the economics profession as the guiding methodological 86 00:08:02.760 --> 00:08:10.040 will start for almost 20 years. In fact, Robbins, in his preface, explicitly singles out Mises 87 00:08:10.040 --> 00:08:15.880 as the most important source of his own methodological position, and Mises and Richard von Striegel, 88 00:08:15.880 --> 00:08:20.880 whose position is essentially indistinguishable from Mises's, are cited approvingly in the 89 00:08:20.880 --> 00:08:26.880 text, more often than anyone else. Yet illuminating as all this may be for an assessment of the 90 00:08:26.880 --> 00:08:32.020 present-day situation, it is only history. What, then, is the rationale of the classical 91 00:08:32.020 --> 00:08:39.020 Let us first look briefly at the natural sciences. How do we know what the consequences were 92 00:09:02.020 --> 00:09:10.020 The questions will be, if we subject some nature-given material to specified tests, let's say if we mix it with another kind of material. 93 00:09:10.020 --> 00:09:15.020 Obviously, we do not know before we actually try it and observe what happens. 94 00:09:15.020 --> 00:09:23.020 We can make a prediction, of course, but our prediction is only a hypothetical one, and observations are required to find out if we are right or wrong. 95 00:09:23.020 --> 00:09:30.020 Moreover, even if we have observed some definite outcome, let's say that mixing the two materials leads to an explosion, 96 00:09:30.020 --> 00:09:36.020 can we then be sure that such an outcome will invariably occur whenever we mix such materials? 97 00:09:36.020 --> 00:09:41.020 Again, the answer is no. Our predictions will still and permanently be hypothetical. 98 00:09:41.020 --> 00:09:47.020 It is possible that an explosion will only result if certain other conditions, A, B and C, are fulfilled. 99 00:09:47.020 --> 00:09:58.020 We can only find out whether or not this is the case, and what these other conditions are, by engaging in a never-ending trial-and-error process. 100 00:09:58.020 --> 00:10:05.020 This enables us to improve our knowledge progressively about the range of application for our original hypothetical prediction. 101 00:10:05.020 --> 00:10:09.020 Now, let us turn to some typical economic propositions. 102 00:10:09.020 --> 00:10:13.020 Consider the validation process of a proposition such as the following. 103 00:10:13.020 --> 00:10:20.020 Whenever two people, A and B, engage in a voluntary exchange, they must both expect to profit from it. 104 00:10:20.020 --> 00:10:25.020 And they must have reverse preference orders for the goods and services exchanged, 105 00:10:25.020 --> 00:10:30.020 so that A values what he receives from B more highly than what he gives to him, 106 00:10:30.020 --> 00:10:34.020 and B must evaluate the same things the other way around. 107 00:10:34.020 --> 00:10:42.020 Or consider this. Whenever an exchange is not voluntary but coerced, one party profits at the expense of the other. 108 00:10:42.020 --> 00:10:48.020 Or the law of marginal utility. Whenever the supply of a good increases by one additional unit, 109 00:10:48.020 --> 00:10:55.020 provided each unit is regarded as of equal serviceability by a person, the value attached to this unit must decrease. 110 00:10:55.020 --> 00:11:01.020 For this additional unit can only be employed as a means for the attainment of a goal that is considered 111 00:11:01.020 --> 00:11:09.020 is considered less valuable than the least valued goal, satisfied by a unit of such good, if the supply were one unit shorter. 112 00:11:09.020 --> 00:11:17.020 Or take the Ricardian law of association. Of two producers, if A is more productive in the production of two types of goods than is B, 113 00:11:17.020 --> 00:11:20.020 they can still engage in a mutually beneficial division of labor. 114 00:11:20.020 --> 00:11:28.020 This is because overall physical productivity is higher if A specializes in producing one good, which he can produce most efficiently, 115 00:11:28.020 --> 00:11:33.020 and both A and B, producing both goods separately and autonomously. 116 00:11:33.020 --> 00:11:45.020 Or, as another example, whenever minimum wage laws are enforced that require wages to be higher than existing market wages, involuntary unemployment will result. 117 00:11:45.020 --> 00:11:57.020 Or as a final example, whenever the quantity of money is increased, while the demand for money to be held as cash reserve on hand is unchanged, the purchasing power of money will fall. 118 00:11:57.020 --> 00:11:58.340 all. 119 00:11:58.340 --> 00:12:03.420 Considering such propositions, is the validation process involved in establishing them as true 120 00:12:03.420 --> 00:12:09.380 or false of the same type as that involved in establishing a proposition in the natural 121 00:12:09.380 --> 00:12:10.380 sciences? 122 00:12:10.380 --> 00:12:15.160 Are these propositions hypothetical, in the same sense as a proposition regarding the 123 00:12:15.160 --> 00:12:18.580 effects of mixing two types of natural materials? 124 00:12:18.580 --> 00:12:23.900 Do we have to test these economic propositions continuously against observations? 125 00:12:23.900 --> 00:12:28.500 And does it require a never-ending trial and error process in order to find out the range 126 00:12:28.500 --> 00:12:33.460 of application for these propositions and to gradually improve our knowledge, such as 127 00:12:33.460 --> 00:12:36.720 we have seen to be the case in the natural sciences? 128 00:12:36.720 --> 00:12:41.940 It seems quite evident, except to most economists of the last 40 years, that the answer to these 129 00:12:41.940 --> 00:12:48.480 questions is a clear and unambiguous no, that A and B must expect to profit and have reverse 130 00:12:48.480 --> 00:12:53.860 preference orders follows from our understanding of what an exchange is, and the same is the 131 00:12:53.860 --> 00:13:22.180 There is no difference, with respect to the other examples given, that the marginal utility 132 00:13:22.180 --> 00:13:28.060 of additional units of supply of homogeneous goods must fall follows from the incontestable 133 00:13:28.060 --> 00:13:33.340 statement that every acting person always prefers what satisfies him more over what 134 00:13:33.340 --> 00:13:38.340 satisfies him less. It is simply absurd to think that continuous testing would be required 135 00:13:38.340 --> 00:13:43.300 to establish such a proposition. The Ricardian law of association, along with a once and 136 00:13:43.300 --> 00:13:49.040 for all delineation of its range of application, also logically follows from the very existence 137 00:13:49.040 --> 00:14:09.040 If A and B differ as described, and accordingly there exists a technological substitution ratio for the goods produced, one such rate for A and one for B, then if they engage in a division of labor as characterized by the law, the physical output produced must be greater than it otherwise would be. 138 00:14:09.040 --> 00:14:18.040 Any other conclusion is logically flawed. The same is true regarding the consequences of minimum wage loss or an increase in the quantity of money. 139 00:14:18.040 --> 00:14:23.720 An increase in unemployment and a decrease in the purchasing power of money are consequences 140 00:14:23.720 --> 00:14:28.920 which are logically implied in the very description of the initial condition as stated in the 141 00:14:28.920 --> 00:14:29.920 propositions at hand. 142 00:14:29.920 --> 00:14:35.480 As a matter of fact, it is absurd to regard these predictions as hypothetical and to think 143 00:14:35.480 --> 00:14:40.520 that their validity could not be established independently of observations, i.e. other 144 00:14:40.520 --> 00:14:45.360 than by actually trying out minimum wage laws or printing more money and observing what 145 00:14:45.360 --> 00:14:46.680 happens. 146 00:14:46.680 --> 00:14:54.680 To use an analogy, it is as if one wanted to establish the theorems of Pythagoras by actually measuring sides and angles of triangles. 147 00:14:54.680 --> 00:15:05.680 Just as anyone would have to comment on such an endeavor, mustn't we say that to think economic propositions would have to be empirically tested is a sign of outright intellectual confusion? 148 00:15:05.680 --> 00:15:12.680 But Mises by no means merely notices this rather obvious difference between economics and the empirical sciences. 149 00:15:12.680 --> 00:15:19.080 He makes us understand the nature of this difference and explains how and why a unique discipline like economics, 150 00:15:19.080 --> 00:15:24.280 which teaches something about reality without requiring observations, can possibly exist. 151 00:15:24.280 --> 00:15:29.080 It is this achievement of Mises's which can hardly be overrated. 152 00:15:29.080 --> 00:15:34.280 In order to better understand this explanation, we must make an excursion into the field of philosophy, 153 00:15:34.280 --> 00:15:39.080 or more precisely, into the field of the philosophy of knowledge or epistemology. 154 00:15:39.080 --> 00:15:43.240 In particular, we must examine the epistemology of Immanuel Kant, 155 00:15:43.240 --> 00:15:49.560 as developed most completely in his critique of pure reason. Mises's idea of praxeology is clearly 156 00:15:49.560 --> 00:15:55.000 influenced by Kant. This is not to say that Mises is a plain and simple Kantian. As a matter of 157 00:15:55.000 --> 00:16:00.840 fact, as I will point out later, Mises carries the Kantian epistemology beyond the point at which 158 00:16:00.840 --> 00:16:07.000 Kant himself left off. Mises improves the Kantian philosophy in a way that to this day has been 159 00:16:07.000 --> 00:16:11.880 have been completely ignored and unappreciated by orthodox Kantian philosophers. 160 00:16:11.880 --> 00:16:17.480 Nonetheless, Mises takes from Kant his central conceptual and terminological distinctions, 161 00:16:17.480 --> 00:16:21.240 as well as some fundamental Kantian insights into the nature of human knowledge. 162 00:16:21.240 --> 00:16:23.560 Thus, we must turn to Kant. 163 00:16:23.560 --> 00:16:29.480 Kant, in the course of his critique of classical empiricism, in particular that of David Hume, 164 00:16:29.480 --> 00:16:33.600 developed the idea that all our propositions can be classified in a two-fold way. 165 00:16:33.600 --> 00:16:37.100 On the one hand, they are either analytic or synthetic. 166 00:16:37.100 --> 00:16:41.500 On the other, they are either a priori or a posteriori. 167 00:16:41.500 --> 00:16:44.880 The meaning of these distinctions is in short the following. 168 00:16:44.880 --> 00:16:50.060 Propositions are analytic whenever the means of formal logic are sufficient in order to 169 00:16:50.060 --> 00:16:52.600 find out whether they are true or not. 170 00:16:52.600 --> 00:16:55.340 Otherwise, propositions are synthetic ones. 171 00:16:55.340 --> 00:17:01.680 And propositions are a posteriori whenever observations are necessary in order to establish 172 00:17:01.680 --> 00:17:09.920 If observations are not necessary, then propositions are a priori. 173 00:17:09.920 --> 00:17:15.280 The characteristic mark of Kantian philosophy is the claim that true a priori synthetic 174 00:17:15.280 --> 00:17:21.000 propositions exist, and it is because Mises subscribes to this claim that he can be called 175 00:17:21.000 --> 00:17:22.960 a Kantian. 176 00:17:22.960 --> 00:17:28.800 Synthetic a priori propositions are those whose truth value can be definitely established, 177 00:17:28.800 --> 00:17:33.500 Even though in order to do so, the means of formal logic are not sufficient, while of 178 00:17:33.500 --> 00:17:37.960 course necessary, and observations are unnecessary. 179 00:17:37.960 --> 00:17:43.560 According to Kant, mathematics and geometry provide examples of true a priori synthetic 180 00:17:43.560 --> 00:17:44.560 propositions. 181 00:17:44.560 --> 00:17:50.120 Yet he also thinks that a proposition such as the general principle of causality, i.e. 182 00:17:50.120 --> 00:17:54.800 the statement that there are time invariably operating causes and every event is embedded 183 00:17:54.800 --> 00:18:01.040 into a network of such causes is a true synthetic a priori proposition. I cannot go into great 184 00:18:01.040 --> 00:18:06.720 detail here to explain how Kant justifies this view. A few remarks will have to suffice. 185 00:18:07.360 --> 00:18:12.960 First, how is the truth of such propositions derived if formal logic is not sufficient 186 00:18:12.960 --> 00:18:18.720 and observations are unnecessary? Kant's answer is that the truth follows from self-evident 187 00:18:18.720 --> 00:18:24.960 material axioms. What makes these axioms self-evident? Kant answers, it is not because 188 00:18:24.960 --> 00:18:30.480 they are self-evident in a psychological sense, in which case we would be immediately aware of them. 189 00:18:30.480 --> 00:18:36.560 On the contrary, Kant insists, it is usually much more painstaking to discover such axioms than it 190 00:18:36.560 --> 00:18:42.320 is to discover some empirical truth such as that the leaves of trees are green. They are self-evident 191 00:18:42.320 --> 00:18:47.520 because one cannot deny their truth without self-contradiction, that is, in attempting to 192 00:18:47.520 --> 00:18:58.520 How do we find such axioms? Cont answers by reflecting upon ourselves, by understanding 193 00:18:58.520 --> 00:19:05.920 ourselves as knowing subjects. And this fact that the truth of a priori synthetic propositions 194 00:19:05.920 --> 00:19:11.800 derives ultimately from inner reflectively produced experience also explains why such 195 00:19:11.800 --> 00:19:17.280 propositions can possibly have the status of being understood as necessarily true. Observational 196 00:19:17.280 --> 00:19:30.120 Contrary to this, however, writes Kant, our reason can understand such things as being 197 00:19:30.120 --> 00:19:36.560 necessarily the way they are, which it has itself produced according to its own design. 198 00:19:36.560 --> 00:19:42.320 In all this, Mises follows Kant, yet as I said earlier, Mises adds one more extremely 199 00:19:42.320 --> 00:19:45.860 important insight that Kant had only vaguely glimpsed. 200 00:19:45.860 --> 00:19:50.360 It has been a common quarrel with Kantianism that this philosophy seemed to imply some 201 00:19:50.360 --> 00:19:56.560 sort of idealism, for if, as Kant sees it, true synthetic a priori propositions are propositions 202 00:19:56.560 --> 00:20:02.400 about how our mind works and must of necessity work, how can it be explained that such mental 203 00:20:02.400 --> 00:20:04.460 categories fit reality? 204 00:20:04.460 --> 00:20:09.300 How can it be explained, for instance, that reality conforms to the principle of causality 205 00:20:09.300 --> 00:20:14.160 if this principle has to be understood as one to which the operation of our mind must 206 00:20:14.160 --> 00:20:15.600 conform? 207 00:20:15.600 --> 00:20:19.760 Don't we have to make the absurd idealistic assumption that this is possible only because 208 00:20:19.760 --> 00:20:22.980 reality was actually created by the mind? 209 00:20:22.980 --> 00:20:28.480 So that I am not misunderstood, I do not think that such a charge against Kantianism is justified. 210 00:20:28.480 --> 00:20:36.800 And yet, through parts of his formulations, Kant has no doubt given this charge some plausibility. 211 00:20:36.800 --> 00:20:40.040 Consider for example this programmatic statement of his. 212 00:20:40.040 --> 00:20:45.360 So far it has been assumed that our knowledge had to conform to observational reality. 213 00:20:45.360 --> 00:20:50.640 said it should be assumed that observational reality conformed our knowledge. 214 00:20:50.640 --> 00:20:53.200 Mises provides the solution to this challenge. 215 00:20:53.200 --> 00:20:58.740 It is true, as Kant says, that true synthetic a priori propositions are grounded in self-evident 216 00:20:58.740 --> 00:21:04.620 axioms and that these axioms have to be understood by reflection upon ourselves rather than being 217 00:21:04.620 --> 00:21:07.120 in any meaningful sense observable. 218 00:21:07.120 --> 00:21:09.080 Yet we have to go one step further. 219 00:21:09.080 --> 00:21:14.880 We must recognize that such necessary truths are not simply categories of our mind, but 220 00:21:14.880 --> 00:21:20.400 Note that our mind is one of acting persons. Our mental categories have to be understood 221 00:21:20.400 --> 00:21:26.080 as ultimately grounded in the categories of action, and as soon as this is recognized, 222 00:21:26.080 --> 00:21:32.220 all idealistic suggestions immediately disappear. Instead, an epistemology claiming the existence 223 00:21:32.220 --> 00:21:39.080 of true synthetic a priori propositions becomes a realistic epistemology. Since it is understood 224 00:21:39.080 --> 00:21:44.160 as ultimately grounded in the categories of action, the gulf between the mental and the 225 00:21:44.160 --> 00:22:02.080 Kant had hinted at this solution. 226 00:22:02.080 --> 00:22:06.600 He thought mathematics, for instance, had to be grounded in our knowledge of the meaning 227 00:22:06.600 --> 00:22:13.640 of repetition, of repetitive operations, and he also realized, if only somewhat vaguely, 228 00:22:13.640 --> 00:22:43.640 The principle of causality is implied in our understanding of what it is and means to act. Yet it is Mises who brings this insight to the foreground. Causality, he realizes, is a category of action. To act means to interfere at some earlier point in time in order to produce some later result, and thus every actor must presuppose the existence of constantly operating causes. Causality is a prerequisite of acting, as Mises puts it. 229 00:22:43.640 --> 00:23:13.640 He is not, as is Kant, interested in epistemology as such. With his recognition of action as the bridge between the mind and the outside reality, he has found a solution to the Kantian problem of how true synthetic a priori propositions can be possible, and he has offered some extremely valuable insights regarding the ultimate formation of other central epistemological propositions besides the principle of causality, such as the law of contradiction as the cornerstone of logic. 230 00:23:13.640 --> 00:23:18.000 Money has thereby opened a path for future philosophical research that to my knowledge 231 00:23:18.000 --> 00:23:23.800 has hardly been traveled. Yet Mises's subject matter is economics, and so I will have to 232 00:23:23.800 --> 00:23:29.840 lay to rest the problem of explaining in more detail the causality principle as an a priori 233 00:23:29.840 --> 00:23:35.600 true proposition. Mises not only recognizes that epistemology indirectly rests on our 234 00:23:35.600 --> 00:23:41.440 reflective knowledge of action, and can thereby claim to state something a priori true about 235 00:23:41.440 --> 00:23:47.920 reality, but that economics does so too, and does so in a much more direct way. 236 00:23:47.920 --> 00:23:52.920 Economic propositions flow directly from our reflectively gained knowledge of action, and 237 00:23:52.920 --> 00:23:59.040 the status of these propositions as a priori true statements about something real is derived 238 00:23:59.040 --> 00:24:04.120 from our understanding of what Mises terms the axiom of action. 239 00:24:04.120 --> 00:24:09.360 This axiom, the proposition that humans act, fulfills the requirements precisely for a 240 00:24:09.360 --> 00:24:12.280 for true synthetic a priori proposition. 241 00:24:12.280 --> 00:24:16.960 It cannot be denied that this proposition is true, since the denial would have to be 242 00:24:16.960 --> 00:24:22.360 categorized as an action, and so the truth of the statement literally cannot be undone. 243 00:24:22.360 --> 00:24:26.720 And the axiom is also not derived from observation. 244 00:24:26.720 --> 00:24:33.200 There are only bodily movements to be observed, but no such things as actions, but stems instead 245 00:24:33.200 --> 00:24:35.520 from reflective understanding. 246 00:24:35.520 --> 00:24:41.080 Moreover, as something that has to be understood rather than observed, it is still knowledge 247 00:24:41.080 --> 00:24:42.600 about reality. 248 00:24:42.600 --> 00:24:46.300 This is because the conceptual distinctions involved in this understanding are nothing 249 00:24:46.300 --> 00:24:50.840 less than the categories employed in the mind's interaction with the physical world by means 250 00:24:50.840 --> 00:24:56.080 of its own physical body, and the axiom of action, in all its implications, is certainly 251 00:24:56.080 --> 00:25:01.380 not self-evident in a psychological sense, although once made explicit, it can be understood 252 00:25:01.380 --> 00:25:05.300 as an undeniably true proposition about something real and existent. 253 00:25:05.300 --> 00:25:10.380 Certainly, it is not psychologically evident, nor is it observable, that with every action 254 00:25:10.380 --> 00:25:15.460 an actor pursues a goal, and that whatever the goal may be, the fact that it is pursued 255 00:25:15.460 --> 00:25:20.900 by an actor reveals that he places a relatively higher value on it than on any other goal 256 00:25:20.900 --> 00:25:25.260 of action he could conceive of at the start of his action. 257 00:25:25.260 --> 00:25:53.260 It is neither evident nor observable that in order to achieve his most highly valued goal, an action must interfere or decide not to interfere, which of course is also an interference, at an earlier point in time, to produce some later result, nor 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 interference. 258 00:25:53.260 --> 00:26:23.260 It is neither self-evident, nor can it be observed, that these means 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 the making of a choice, i.e., taking up that one course of action which at some given point in time promises the most highly valued result to the actor, and excluding at the same time the pursuit of other less 259 00:26:23.260 --> 00:26:39.260 It is not automatically clear or observable 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. 260 00:26:39.260 --> 00:26:54.260 For example, forsaking the value attached to the most highly valued alternative goal that cannot be realized, or whose realization must be deferred because the means necessary to affect it are bound up in the production of another, even more highly valued goal. 261 00:26:54.260 --> 00:27:14.260 And lastly, it is not plainly evident or observable 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 opportunities. 262 00:27:14.260 --> 00:27:19.380 and yet every action is also invariably threatened by the possibility of a loss 263 00:27:19.380 --> 00:27:24.260 if an actor finds in retrospect that the result actually achieved contrary to 264 00:27:24.260 --> 00:27:28.740 previous expectations has a lower value than the relinquished alternative would 265 00:27:28.740 --> 00:27:34.140 have had. All of these categories, values, ends, means, choice, preference, cost, 266 00:27:34.140 --> 00:27:39.500 profit and loss, as well as time and causality, are implied in the axiom of 267 00:27:39.500 --> 00:27:46.180 of Action. Yet that one is able to interpret observations in such categories requires that 268 00:27:46.180 --> 00:27:53.380 one already knows what it means to act. No one who is not an actor could ever understand 269 00:27:53.380 --> 00:28:00.060 them. They are not given, ready to be observed, but observational experience is cast in these 270 00:28:00.060 --> 00:28:06.940 terms as it is construed by an actor, nor is their reflective reconstruction a simple 271 00:28:06.940 --> 00:28:15.940 This is a real psychologically self-evident intellectual task, as proved by a long line of abortive attempts along the way to the just outlined insights into the nature of action. 272 00:28:15.940 --> 00:28:35.940 It took painstaking intellectual effort to recognize explicitly what once made explicit everybody recognizes immediately as true and can understand as true synthetic a priori statements, i.e. propositions that can be validated independently of observations, and thus cannot possibly be falsified by any observation whatsoever. 273 00:28:35.940 --> 00:28:53.940 The attempt to disprove the action axiom would itself be an action 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. 274 00:28:53.940 --> 00:29:07.940 And the very possession of such knowledge, then, can never be disputed, and the validity of these concepts can never be falsified by any contingent experience, for disputing or falsifying anything would already have presupposed their very existence. 275 00:29:07.940 --> 00:29:17.940 As a matter of fact, a situation in which these categories of action would cease to have a real existence could never itself be observed, for making an observation, too, is an action. 276 00:29:17.940 --> 00:29:35.940 Mises's great insight was that economic reasoning has its foundation in just this understanding of action and that the status of economics as a sort of applied logic derives from the status of the action axiom as an a priori true synthetic proposition. 277 00:29:35.940 --> 00:29:44.940 The laws of exchange, the law of diminishing marginal utility, the Ricardian law of association, the law of price controls, and the quantity theory of money, 278 00:29:44.940 --> 00:29:50.940 All examples of economic propositions which I have mentioned can be logically derived from this axiom. 279 00:29:50.940 --> 00:29:59.940 And this is why it strikes one as ridiculous to think of such propositions as being of the same epistemological type as those of the natural sciences. 280 00:29:59.940 --> 00:30:07.940 To think that they are, and accordingly to require testing for their validation, is like supposing that we had to engage in some fact-finding process 281 00:30:07.940 --> 00:30:12.940 without knowing the possible outcome in order to establish the fact that one is indeed an actor. 282 00:30:12.940 --> 00:30:19.700 and actor. In a word, it is absurd. Praxeology says that all economic propositions which 283 00:30:19.700 --> 00:30:25.340 claim to be true must be shown to be deducible by means of formal logic from the incontestably 284 00:30:25.340 --> 00:30:31.180 true material knowledge regarding the meaning of action. Specifically, all economic reasoning 285 00:30:31.180 --> 00:30:36.820 consists of the following. One, an understanding of the categories of action and the meaning 286 00:30:36.820 --> 00:30:43.940 of a change occurring in such things as values, preferences, knowledge, means, costs, etc. 287 00:30:43.940 --> 00:30:44.940 2. 288 00:30:44.940 --> 00:30:50.340 A description of a world in which the categories of action assume concrete meaning, where definite 289 00:30:50.340 --> 00:30:56.140 people are identified as actors with definite objects specified as their means of action, 290 00:30:56.140 --> 00:31:02.060 with some definite goals identified as values and definite things specified as costs. 291 00:31:02.060 --> 00:31:07.260 Such description could be one of a Robinson Crusoe world, or a world with more than one 292 00:31:07.260 --> 00:31:12.940 actor in which interpersonal relationships are possible, of a world of barter exchange, 293 00:31:12.940 --> 00:31:17.340 or of money and exchanges that make use of money as a common medium of exchange, of a 294 00:31:17.340 --> 00:31:24.180 world of only land, labor, and time as factors of production, or a world with capital products, 295 00:31:24.180 --> 00:31:29.420 of a world with perfectly divisible or indivisible, specific or unspecific factors of production, 296 00:31:29.420 --> 00:31:34.040 Four of a world with diverse social institutions, treating diverse actions as aggression and 297 00:31:34.040 --> 00:31:36.860 threatening them with physical punishment, etc. 298 00:31:36.860 --> 00:31:43.420 And three, a logical deduction of the consequences which result from the performance of some 299 00:31:43.420 --> 00:31:49.060 specified action within this world, or of the consequences which result for a specific 300 00:31:49.060 --> 00:31:53.700 actor if the situation is changed in a specified way. 301 00:31:53.700 --> 00:31:58.620 Provided there is no flaw in the process of deduction, the conclusions that such reasoning 302 00:31:58.620 --> 00:32:07.620 The two main yields must be valid a priori, because their validity would ultimately go back to nothing but the indisputable axiom of action. 303 00:32:07.620 --> 00:32:19.620 If the situation and the changes introduced into it are fictional or assumption, a Robinson Crusoe world, or a world with only indivisible or only completely specific factors of production, 304 00:32:19.620 --> 00:32:24.620 Then the conclusions are, of course, a priori true, only of such a possible world. 305 00:32:24.620 --> 00:32:31.620 If, on the other hand, the situation and changes can be identified as real, perceived and conceptualized as such by real actors, 306 00:32:31.620 --> 00:32:38.620 then the conclusions are a priori true propositions about the world as it really is. 307 00:32:38.620 --> 00:32:41.620 Such is the idea of economics as praxeology. 308 00:32:41.620 --> 00:32:46.620 And such, then, is the ultimate disagreement that Austrians have with their colleagues. 309 00:32:46.620 --> 00:33:03.420 And even if there is agreement on the identification of facts and the assessment of certain events 310 00:33:03.420 --> 00:33:08.740 as being related to each other as causes and consequences, this agreement is superficial. 311 00:33:08.740 --> 00:33:14.300 For such economists falsely believe their statements to be empirically well-tested propositions, 312 00:33:14.300 --> 00:33:18.220 When they are, in fact, propositions that are true a priori.