WEBVTT NOTE Praxeology and Economic Science: II 1 00:00:00.000 --> 00:00:06.960 Praxeology and Economic Science, Section 2. Non-praxeological schools of thought mistakenly 2 00:00:06.960 --> 00:00:11.840 believe that relationships between certain events are well-established empirical laws 3 00:00:11.840 --> 00:00:17.520 when they are really necessary and logical praxeological ones, and they thereby behave 4 00:00:17.520 --> 00:00:23.120 as if the statement, a ball cannot be read and non-read all over at the same time, requires 5 00:00:23.120 --> 00:00:29.680 testing in Europe, America, Africa, Asia, and Australia, of course requiring a lot of funds 6 00:00:29.680 --> 00:00:36.080 in order to pay for such daring nonsensical research. Moreover, the non-praxeologists 7 00:00:36.080 --> 00:00:41.360 also believe that relationships between certain events are well-established empirical laws 8 00:00:41.360 --> 00:00:46.320 with predictive implications when a priori reasoning can show them to be no more than 9 00:00:46.320 --> 00:00:51.200 information regarding contingent historical connections between events, which does not 10 00:00:51.200 --> 00:00:55.600 provide us with any knowledge whatsoever regarding the future course of events. 11 00:00:55.600 --> 00:01:01.280 This illustrates another fundamental confusion non-Austrian schools have, a confusion over 12 00:01:01.280 --> 00:01:06.200 the categorical difference between theory and history, and the implication that this 13 00:01:06.200 --> 00:01:10.800 difference has for the problem of social and economic forecasting. 14 00:01:10.800 --> 00:01:17.200 I must again begin with a description of empiricism, the philosophy which thinks of economics and 15 00:01:17.200 --> 00:01:22.600 the social sciences in general as following the same logic of research as that, for instance, 16 00:01:22.600 --> 00:01:23.680 of physics. 17 00:01:23.680 --> 00:01:25.440 I will explain why. 18 00:01:25.440 --> 00:01:30.720 According to empiricism, today's most widely held view of economics, there is no categorical 19 00:01:30.720 --> 00:01:36.360 difference between theoretical and historical research, and I will explain what this implies 20 00:01:36.360 --> 00:01:39.240 for the idea of social forecasting. 21 00:01:39.240 --> 00:01:45.480 The very different Austrian view will then be developed out of a critique and refutation 22 00:01:45.480 --> 00:01:48.440 of the empiricist position. 23 00:01:48.440 --> 00:01:54.440 Empiricism is characterized by the fact that it accepts two intimately related basic propositions. 24 00:01:54.440 --> 00:01:59.720 The first and most central one is knowledge regarding reality, which is called empirical 25 00:01:59.720 --> 00:02:06.200 knowledge, must be verifiable or at least falsifiable by observational experience. 26 00:02:06.200 --> 00:02:10.400 Observational experience can only lead to contingent knowledge as opposed to necessary 27 00:02:10.400 --> 00:02:15.960 knowledge because it is always of such a kind that in principle it could have been different 28 00:02:15.960 --> 00:02:17.880 than it actually was. 29 00:02:17.880 --> 00:02:22.560 This means that no one can know in advance of experience, that is before actually having 30 00:02:22.560 --> 00:02:52.560 If the consequence of some real event will be one way or another, if on the other hand knowledge is not verifiable or falsifiable by observational experience, then it is not knowledge about anything real, it is simply knowledge about words, about the use of terms, about signs and transformational rules for signs, that is to say, it is analytical knowledge and not empirical knowledge, and it is highly doubtful, according to this view, 31 00:02:52.560 --> 00:03:07.560 The second assumption of empiricism formulates the extension and application of the first assumption to problems of causality, causal explanation, and prediction. 32 00:03:07.560 --> 00:03:16.560 According to empiricism, to explain causally or predict a real phenomenon is to formulate a statement of either the type if A then B, 33 00:03:16.560 --> 00:03:21.920 in B, or should the variables allow quantitative measurement if an increase or decrease in 34 00:03:21.920 --> 00:03:27.960 A, then an increase or decrease in B. As a statement referring to reality, with A and 35 00:03:27.960 --> 00:03:33.280 B being real phenomena, its validity can never be established with certainty, that is, by 36 00:03:33.280 --> 00:03:39.160 examining the proposition alone, or of any other proposition from which the one in question 37 00:03:39.160 --> 00:03:44.720 could be logically deduced. The statement will always be, and always remain, hypothetical. 38 00:03:44.720 --> 00:03:51.720 It's veracity, depending on the outcome of future observational experiences, which cannot be known in advance. 39 00:03:51.720 --> 00:03:58.720 Should experience confirm a hypothetical causal explanation, this would not prove that the hypothesis was true. 40 00:03:58.720 --> 00:04:03.720 Should one observe an instance where B indeed followed A as predicted, it verifies nothing. 41 00:04:03.720 --> 00:04:09.720 A and B are general abstract terms, or in philosophical terminology, universals, 42 00:04:09.720 --> 00:04:17.220 which refer to events and processes of which there are, or might be in principle, an indefinite number of instances. 43 00:04:17.220 --> 00:04:21.220 Later experiences could still possibly falsify it. 44 00:04:21.220 --> 00:04:26.220 And if an experience falsified a hypothesis, this would not be decisive either, 45 00:04:26.220 --> 00:04:35.220 for if it was observed that A was not followed by B, it would still be possible that the hypothetically related phenomena were causally linked. 46 00:04:35.220 --> 00:04:40.580 It could be that some other circumstance or variable, heretofore neglected and uncontrolled, 47 00:04:40.580 --> 00:04:45.940 had simply prevented the hypothesized relationship from actually being observed. At the most, 48 00:04:45.940 --> 00:04:51.300 falsification only proves that the particular hypothesis under investigation was not completely 49 00:04:51.300 --> 00:04:56.420 correct as it stood. It needs some refinement, some specification of additional variables which 50 00:04:56.420 --> 00:05:01.460 have to be watched for and controlled so that we might observe the hypothesized relationship 51 00:05:01.460 --> 00:05:07.540 between A and B. But to be sure, a falsification would never prove once and for all that a relationship 52 00:05:07.540 --> 00:05:13.860 between some given phenomena did not exist, just as a confirmation would never definitively prove 53 00:05:13.860 --> 00:05:20.420 that it did exist. When we consider this position, we notice that it again implies a denial of a 54 00:05:20.420 --> 00:05:26.820 priori knowledge that is at the same time knowledge about anything real. Any proposition that claims 55 00:05:26.820 --> 00:05:40.820 The theory seems to be a priori can, according to empiricism, be no more than signs on paper, that are related to each other by definition or by arbitrary stipulation, and is thus completely void. It is without connection to the world of real things whatsoever. 56 00:05:40.820 --> 00:05:48.260 Such a system of signs only becomes an empirically meaningful theory once an empirical interpretation is given to its symbols. 57 00:05:48.260 --> 00:05:58.060 Yet, as soon as such an interpretation is given to its symbols, the theory is no longer a priori true, but rather becomes and remains forever hypothetical. 58 00:05:58.060 --> 00:06:05.860 Moreover, according to empiricism, we cannot know with certainty whether something is a possible cause of something else. 59 00:06:05.860 --> 00:06:14.260 If we want to explain some phenomenon, our hypothesizing about possible causes is in no way constrained by a priori considerations. 60 00:06:14.260 --> 00:06:23.760 Everything can have some influence on anything. We must find out by experience whether it does or not, but then experience will never give us a definite answer to this question either. 61 00:06:23.760 --> 00:06:29.860 The next point brings us to our central topic of this section, the relationship between history and theory. 62 00:06:29.860 --> 00:06:36.420 We notice that according to empiricism, there is no principal difference between historical and theoretical explanations. 63 00:06:36.420 --> 00:06:38.500 Every explanation is of the same type. 64 00:06:38.500 --> 00:06:43.140 In order to explain a phenomenon, we hypothesize some other phenomenon as its cause, 65 00:06:43.140 --> 00:06:48.500 and then see whether or not the hypothesized cause indeed preceded the effect in time. 66 00:06:48.500 --> 00:06:52.820 A distinction exists between a historical and a theoretical explanation, 67 00:06:52.820 --> 00:06:58.180 only insofar as a historical explanation refers to events that already happened, 68 00:06:58.180 --> 00:07:06.880 Something that lies in the past, whereas a theoretical explanation would be an explanation, or rather a prediction, of an effect that has not yet occurred. 69 00:07:06.880 --> 00:07:12.980 Structurally, though, there is no difference between such historical explanations and theoretical predictions. 70 00:07:12.980 --> 00:07:20.580 There is, however, a pragmatic difference, which explains why empiricists in particular stress the importance of a theory's predictive power, 71 00:07:20.580 --> 00:07:24.880 and are not content with testing it only vis-à-vis historical data. 72 00:07:24.880 --> 00:07:30.560 The reason for this is quite evident to anyone who was ever engaged in the foolish game of data analyses. 73 00:07:30.560 --> 00:07:36.000 If the phenomenon to be explained has already occurred, it is easy as cake to find all sorts 74 00:07:36.000 --> 00:07:40.960 of events that preceded it in time and could possibly be considered its cause. Moreover, 75 00:07:40.960 --> 00:07:47.200 if we don't want to lengthen our list of possible causes by finding more preceding variables, 76 00:07:47.200 --> 00:07:52.000 we can do the following, and in the age of computers it's even easier. We can take any 77 00:07:52.000 --> 00:07:56.360 Any one of the preceding variables can try out different functional relationships between 78 00:07:56.360 --> 00:08:01.600 it and the variable to be explained, linear or curvilinear ones, recursive or non-recursive 79 00:08:01.600 --> 00:08:05.840 functions, additive or multiplicative relations, etc. 80 00:08:05.840 --> 00:08:11.200 Then one, two, three, we find what we were looking for, a functional relationship that 81 00:08:11.200 --> 00:08:12.840 fits the data. 82 00:08:12.840 --> 00:08:18.540 And you will find not just one, but any amount of them that you could possibly desire. 83 00:08:18.540 --> 00:08:24.340 But which of all these preceding events, or of all the types of relationships, is the 84 00:08:24.340 --> 00:08:27.100 cause or causally effective relation? 85 00:08:27.100 --> 00:08:32.600 There are no a priori considerations, according to empiricism, that could help us here. 86 00:08:32.600 --> 00:08:38.700 And that, then, is the reason why empiricists emphasize the importance of predictions. 87 00:08:38.700 --> 00:08:44.300 In order to find out which one of these manifold historical explanations is indeed correct, 88 00:08:44.300 --> 00:08:55.300 or at least not false. We are asked to try them out by using them in predicting events that have not yet occurred, see how good they are, and thereby weed out the wrong explanations. 89 00:08:55.300 --> 00:09:11.300 So much for empiricism and its ideas about theory, history and forecasting. I will not go into a detailed analysis of the question whether or not this emphasis on predictive success changes much, if anything at all, with respect to the rather evident relativistic implications of empiricism. 90 00:09:11.300 --> 00:09:25.300 Just recall that according to its very own doctrine, neither a predictive confirmation nor a predictive falsification would help us either in deciding whether a causal relationship between a pair of variables did or did not exist. 91 00:09:25.300 --> 00:09:33.300 This should make it appear rather doubtful that anything is gained by making prediction the cornerstone of one's philosophy. 92 00:09:33.300 --> 00:09:37.300 I would like to challenge the very starting point of the empiricist's philosophy. 93 00:09:37.300 --> 00:09:40.300 There are several conclusive refutations of empiricism. 94 00:09:40.300 --> 00:09:47.300 I will show the empiricist distinction between empirical and analytical knowledge to be plainly false and self-contradictory. 95 00:09:47.300 --> 00:09:53.300 That will then lead us to developing the Austrian position on theory, history, and forecasting. 96 00:09:53.300 --> 00:09:55.300 This is empiricism's central plane. 97 00:09:55.300 --> 00:10:08.300 Empirical knowledge must be verifiable or falsifiable by experience, and analytical knowledge, which is not so verifiable or falsifiable, thus cannot contain any empirical knowledge. 98 00:10:08.300 --> 00:10:15.300 If this is true, then it is fair to ask, what then is the status of this fundamental statement of empiricism? 99 00:10:15.300 --> 00:10:19.300 Evidently, it must be either analytical or empirical. 100 00:10:19.300 --> 00:10:32.300 First, let us assume it is analytical. According to the empiricist doctrine, however, an analytical proposition is nothing but scribbles on paper, hot air, entirely void of any meaningful content. 101 00:10:32.300 --> 00:10:42.300 It says nothing about anything real, and hence one would have to conclude that empiricism could not even say and mean what it seems to say and mean. 102 00:10:42.300 --> 00:10:49.300 Yet if, on the other hand, it says and means what we thought it did all along, then it does inform us about something real. 103 00:10:49.300 --> 00:10:53.300 As a matter of fact, it informs us about the fundamental structure of reality. 104 00:10:53.300 --> 00:11:05.300 It says that there is nothing in reality that can be known to be one way or another prior to future experiences which may confirm or disconfirm our hypothesis. 105 00:11:05.300 --> 00:11:19.300 And if this meaningful proposition is taken to be analytical, that is, as a statement that does not allow any falsification, and whose truth can be established by an analysis of its terms alone, one has no less than a glaring contradiction at hand. 106 00:11:19.300 --> 00:11:25.220 On the other hand, empiricism itself would prove to be nothing but self-defeating nonsense. 107 00:11:25.220 --> 00:11:31.280 So perhaps we should choose the other available option, and declare the fundamental empiricist 108 00:11:31.280 --> 00:11:36.720 distinction between empirical and analytical knowledge an empirical statement. 109 00:11:36.720 --> 00:11:42.020 But then, the empiricist position would no longer carry any weight whatsoever, for if 110 00:11:42.020 --> 00:11:47.120 this were done, it would have to be admitted that the proposition as an empirical one might 111 00:11:47.120 --> 00:11:52.920 might well be wrong, and that one would be entitled to hear, on the basis of what criterion 112 00:11:52.920 --> 00:11:56.280 one would have to decide whether or not it was. 113 00:11:56.280 --> 00:12:01.600 More decisively, as an empirical proposition, right or wrong, it could only state a historical 114 00:12:01.600 --> 00:12:02.760 fact. 115 00:12:02.760 --> 00:12:08.280 Something like, all heretofore scrutinized propositions fall indeed into the two categories 116 00:12:08.280 --> 00:12:10.800 analytical and empirical. 117 00:12:10.800 --> 00:12:16.240 The statement would be entirely irrelevant for determining whether it would be possible 118 00:12:16.240 --> 00:12:20.880 to produce propositions that are true a priori and are still empirical ones. 119 00:12:20.880 --> 00:12:26.200 Indeed, if empiricism's central claim were declared an empirical proposition, 120 00:12:26.200 --> 00:12:31.240 empiricism would cease altogether to be an epistemology, a logic of science, 121 00:12:31.240 --> 00:12:34.680 and would be no more than a completely arbitrary verbal convention 122 00:12:34.680 --> 00:12:38.120 of naming certain arbitrary ways of dealing with certain statements, 123 00:12:38.120 --> 00:12:39.880 certain arbitrary names. 124 00:12:39.880 --> 00:12:44.000 Empiricism would be a position void of any justification. 125 00:12:44.000 --> 00:12:47.680 What does this first step in our criticism of empiricism prove? 126 00:12:47.680 --> 00:12:54.240 It proves, evidently, that the empiricist idea of knowledge is wrong, and improves this by means 127 00:12:54.240 --> 00:13:00.960 of a meaningful a priori argument. And in doing this, it shows that the Kantian and Misesian idea 128 00:13:00.960 --> 00:13:08.000 of true a priori synthetic propositions is correct. More specifically, it proves that the relationship 129 00:13:08.000 --> 00:13:13.920 The relationship between theory and history cannot be as depicted by empiricism. 130 00:13:13.920 --> 00:13:21.000 There must also be a realm of theory, theory that is empirically meaningful, which is categorically 131 00:13:21.000 --> 00:13:28.880 different from the only idea of theory empiricism admits to having existence. 132 00:13:28.880 --> 00:13:34.960 There must also be a priori theories, and the relationship between theory and history 133 00:13:34.960 --> 00:13:40.640 then must be different and more complicated than empiricism would have us believe. 134 00:13:40.640 --> 00:13:46.320 How different indeed will become apparent when I present another argument against empiricism, 135 00:13:46.320 --> 00:13:54.480 another a priori argument, and an a priori argument against the thesis implied in empiricism 136 00:13:54.480 --> 00:14:01.040 that the relation between theory and empirical research is the same in every field of knowledge. 137 00:14:01.040 --> 00:14:11.040 However appropriate the empiricist ideas may be in dealing with the natural sciences, and I think they are inappropriate even there, but I cannot go into this here. 138 00:14:11.040 --> 00:14:18.040 It is impossible to think that the methods of empiricism can be applicable in the social sciences. 139 00:14:18.040 --> 00:14:26.040 Actions are the field of phenomena which constitutes what we regard as the subject matter of the social sciences. 140 00:14:26.040 --> 00:14:38.040 Empiricism claims that actions can and must be explained, just as any other phenomenon, by means of causal hypotheses, which can be confirmed or falsified by experience. 141 00:14:38.040 --> 00:14:52.040 Now, if this were the case, then empiricism would be first forced to assume, contrary to its own doctrine that no a priori knowledge about anything real exists, that time invariantly operating causes with respect to actions exist. 142 00:14:52.040 --> 00:15:00.040 One would not know a priori which particular event might be the cause of any particular action. 143 00:15:00.040 --> 00:15:09.040 But empiricism wants us to relate different experiences regarding sequences of events as either confirming or falsifying each other. 144 00:15:09.040 --> 00:15:16.040 And if they falsify each other, then we are to respond with a reformulation of the original hypothesis. 145 00:15:16.040 --> 00:15:22.360 Yet in order to do so, we must assume a constancy over time in the operation of causes as such, 146 00:15:22.360 --> 00:15:30.600 and to know that causes of actions do exist is, of course, knowledge about the reality of actions. 147 00:15:31.240 --> 00:15:37.640 Without such an assumption regarding the existence of causes as such, different experiences can never 148 00:15:37.640 --> 00:15:43.400 be related to each other as confirming or falsifying one another. They are simply unrelated, 149 00:15:43.400 --> 00:15:49.720 incommensurable observations. Here is one, there is another, they are the same or similar or they 150 00:15:49.720 --> 00:15:55.560 are different, nothing else follows. In addition, there's yet another contradiction, and making it 151 00:15:55.560 --> 00:16:00.760 evident will immediately lead us to Mises's central insight that the relationship between theory and 152 00:16:00.760 --> 00:16:06.840 history in the field of the social sciences is of an entirely different nature than that in the 153 00:16:06.840 --> 00:16:13.080 natural sciences. What is this contradiction? If actions could indeed be conceived of as governed 154 00:16:13.080 --> 00:16:18.360 by Time Invariably Operating Causes, then it is certainly appropriate to ask, 155 00:16:18.360 --> 00:16:23.880 but what then about explaining the explainers? What about causally predicting their actions? 156 00:16:23.880 --> 00:16:29.400 They are, after all, the persons who carry on the very process of creating hypotheses 157 00:16:29.400 --> 00:16:36.200 and of verification and falsification. In order to assimilate confirming or falsifying experiences 158 00:16:36.200 --> 00:16:42.200 to replace old hypotheses with new ones, one must assumedly be able to learn from experience. 159 00:16:42.200 --> 00:16:47.720 Every empiricist is of course forced to admit this. Otherwise, why engage in empirical research at all? 160 00:16:47.720 --> 00:16:54.360 But if one can learn from experience, in as yet unknown ways, then one admittedly cannot know at 161 00:16:54.360 --> 00:17:00.440 any given time what one will know at a later time, and accordingly how one will act on the basis of 162 00:17:00.440 --> 00:17:06.600 this knowledge. One can only reconstruct the causes of one's actions after the event, as one can 163 00:17:06.600 --> 00:17:09.920 can explain one's knowledge only after one already possesses it. 164 00:17:09.920 --> 00:17:15.420 Indeed, no scientific advance could ever alter the fact that one must regard one's knowledge 165 00:17:15.420 --> 00:17:21.100 and actions as unpredictable on the basis of constantly operating causes. 166 00:17:21.100 --> 00:17:26.000 One might hold this conception of freedom to be an illusion, and one might well be correct 167 00:17:26.000 --> 00:17:30.140 from the point of view of a scientist with cognitive powers substantially superior to 168 00:17:30.140 --> 00:17:34.840 any human intelligence or from the point of view of God, but we are not God. 169 00:17:34.840 --> 00:17:39.440 And even if our freedom is illusory from his standpoint, and our actions follow a predictable 170 00:17:39.440 --> 00:17:43.800 path, for us this is a necessary and unavoidable illusion. 171 00:17:43.800 --> 00:17:48.560 We cannot predict in advance, on the basis of our previous states, the future states 172 00:17:48.560 --> 00:17:52.360 of our knowledge, or the actions manifesting that knowledge. 173 00:17:52.360 --> 00:17:56.040 We can only reconstruct them after the event. 174 00:17:56.040 --> 00:18:02.320 Thus, the empiricist methodology is simply contradictory when applied to the field of 175 00:18:02.320 --> 00:18:08.000 of knowledge and action, which contains knowledge as its necessary ingredient. 176 00:18:08.000 --> 00:18:13.080 The empiricist-minded social scientists who formulate prediction equations regarding social 177 00:18:13.080 --> 00:18:16.120 phenomena are simply doing nonsense. 178 00:18:16.120 --> 00:18:20.440 Their activity of engaging in an enterprise whose outcome they must admit they do not 179 00:18:20.440 --> 00:18:25.640 yet know proves that what they pretend to do cannot be done. 180 00:18:25.640 --> 00:18:31.160 As Mises puts it, and has emphasized repeatedly, there are no empirical causal constants in 181 00:18:31.160 --> 00:18:33.560 in the field of human action. 182 00:18:33.560 --> 00:18:38.120 By means of a priori reasoning, then, one has established this insight. 183 00:18:38.120 --> 00:18:43.920 Social history, as opposed to natural history, does not yield any knowledge that can be employed 184 00:18:43.920 --> 00:18:45.800 for predictive purposes. 185 00:18:45.800 --> 00:18:52.040 Rather, social and economic history refer exclusively to the past. 186 00:18:52.040 --> 00:18:59.000 The outcome of research into how and why people acted in the past has no systematic bearing 187 00:18:59.000 --> 00:19:04.260 on whether or not they will act the same way in the future. People can learn. It is absurd 188 00:19:04.260 --> 00:19:09.960 to assume that one could predict in the present what one will know tomorrow and in what way 189 00:19:09.960 --> 00:19:15.380 tomorrow's knowledge will or will not be different from today's. A person cannot predict today 190 00:19:15.380 --> 00:19:20.120 his demand for sugar in one year any more than Einstein could have predicted the theory 191 00:19:20.120 --> 00:19:26.060 of relativity before he had actually developed it. A person cannot know today what he will 192 00:19:26.060 --> 00:19:34.060 He will know about sugar one year from now, and he cannot know all the goods that will be competing against sugar for his money in a year. 193 00:19:34.060 --> 00:19:43.060 He can make a guess, of course, but since it must be admitted that future states of knowledge cannot be predicted on the basis of constantly operating causes, 194 00:19:43.060 --> 00:19:52.060 a person cannot pretend to make a prediction of the same epistemological type as, for instance, one regarding the future behavior of the moon, the weather, or the tides. 195 00:19:52.060 --> 00:19:58.460 Those are predictions that could legitimately make use of the assumption of time-invariantly operating causes, 196 00:19:58.460 --> 00:20:02.860 but a prediction about future sugar demand would be an entirely different thing. 197 00:20:02.860 --> 00:20:08.660 Provided social and economic history can only come up with reconstructive explanations 198 00:20:08.660 --> 00:20:12.860 and never with explanations that have any systematic predictive relevance, 199 00:20:12.860 --> 00:20:18.960 another extremely important insight regarding the logic of empirical social research follows. 200 00:20:18.960 --> 00:20:27.960 And this amounts to another decisive criticism of empiricism, at least regarding its claim of being an appropriate methodology for social science research. 201 00:20:27.960 --> 00:20:36.960 Recall what I said earlier about why it is that empiricism so strongly emphasizes the predictive function of explanatory theories. 202 00:20:36.960 --> 00:20:45.960 For every phenomenon to be explained, there are a multitude of preceding events and a multitude of functional relationships with such preceding events, 203 00:20:45.960 --> 00:20:49.360 by which the phenomenon in question could possibly be explained. 204 00:20:49.360 --> 00:20:53.060 But which of these rival explanations is correct and which ones are not? 205 00:20:53.060 --> 00:20:58.360 The empiricist's answer was, try to predict, and your success or failure in predicting future events 206 00:20:58.360 --> 00:21:01.860 will tell you which explanation is or is not correct. 207 00:21:01.860 --> 00:21:07.660 Evidently, this advice won't do if there are no time-invariantly operating causes with respect to actions. 208 00:21:07.660 --> 00:21:08.660 What then? 209 00:21:08.660 --> 00:21:12.760 Empiricism, of course, cannot have an answer to this question. 210 00:21:12.760 --> 00:21:17.960 Yet, even if actions cannot be predicted in any scientific way, this does not imply that 211 00:21:17.960 --> 00:21:23.000 one reconstructive historical explanation is just as good as any other. It would be regarded as 212 00:21:23.000 --> 00:21:28.120 absurd if someone explained the fact that I moved from Germany to the United States by pointing out, 213 00:21:28.120 --> 00:21:33.880 for example, that the corn in Michigan prior to my decision was experiencing a growth spurt and that 214 00:21:33.880 --> 00:21:39.880 this had caused my decision. But why not, assuming here that the event regarding Michigan's corn 215 00:21:39.880 --> 00:21:44.920 indeed happened prior to my decision. The reason is, of course, that I will tell you that Michigan's 216 00:21:44.920 --> 00:21:50.760 corn had no relevance to my decision, and insofar as anything is known about me at all, it can be 217 00:21:50.760 --> 00:21:57.160 recognized that this is indeed the case. But how can you recognize this? The answer is by understanding 218 00:21:57.160 --> 00:22:03.160 my motives and interests, my convictions and aspirations, my normative orientations, and my 219 00:22:03.160 --> 00:22:07.160 My Concrete Perceptions Resulting in This Action 220 00:22:07.160 --> 00:22:14.160 How do we understand somebody, and moreover, how do we verify that our understanding is indeed correct? 221 00:22:14.160 --> 00:22:21.160 As regards the first part of the question, one understands somebody by engaging in a pseudo communication and interaction with him. 222 00:22:21.160 --> 00:22:29.160 I say pseudo because evidently we cannot engage in an actual communication with Caesar in order to find out why he crossed the Rubicon. 223 00:22:29.160 --> 00:22:35.160 But we could study his writings and compare his convictions expressed therein with his actual deeds. 224 00:22:35.160 --> 00:22:45.160 We could study the writings and actions of contemporaries, and thereby try to understand Caesar's personality, his time, and his particular role and position within his time. 225 00:22:45.160 --> 00:22:52.160 As regards the second part of the question, the problem of verification of historical explanations, 226 00:22:52.160 --> 00:22:58.000 One has to admit from the outset that there is no absolutely clear-cut criterion that would allow 227 00:22:58.000 --> 00:23:04.160 one to decide which one of two rival explanations, both equally based on understanding, is definitely 228 00:23:04.160 --> 00:23:09.920 correct and which one is not. History is not an exact science in the same sense as the natural 229 00:23:09.920 --> 00:23:16.320 sciences are exact sciences, or in the very different sense in which economics is an exact 230 00:23:16.320 --> 00:23:21.600 science. Even if two historians agree in their description of facts and their assessment of 231 00:23:21.600 --> 00:23:26.280 of Factors of Influence for a Given Action to be Explained, they might still disagree 232 00:23:26.280 --> 00:23:30.640 on the weight that should be assigned to such factors in bringing about the action, and 233 00:23:30.640 --> 00:23:34.960 there would be no way to decide the matter in a completely unambiguous way. 234 00:23:34.960 --> 00:23:38.240 Yet, let me not be misunderstood here. 235 00:23:38.240 --> 00:23:42.600 There is nonetheless some sort of truth criterion for historical explanation. 236 00:23:42.600 --> 00:23:47.720 It is a criterion that does not eliminate all possible disagreements among historians, 237 00:23:47.720 --> 00:23:52.680 But that still excludes and disqualifies a wide range of explanations. 238 00:23:52.680 --> 00:23:58.600 The criterion is that any true historical explanation must be of such a kind that the 239 00:23:58.600 --> 00:24:04.360 actor whose actions are to be explained must in principle be able to verify the explanation 240 00:24:04.360 --> 00:24:08.680 and the explanatory factors as being those that contributed to his acting the way he 241 00:24:08.680 --> 00:24:09.680 did. 242 00:24:09.680 --> 00:24:12.440 The key phrase here is in principle. 243 00:24:12.440 --> 00:24:17.680 Naturally, Caesar could not possibly verify our explanation for his crossing the Rubicon. 244 00:24:17.680 --> 00:24:22.120 Moreover, he might actually have strong reasons not to verify the explanation, even if he 245 00:24:22.120 --> 00:24:28.640 could, since such a verification might conflict with some other objectives that he might have. 246 00:24:28.640 --> 00:24:34.600 Also, to say that any true explanation must be verifiable by the actor in question is 247 00:24:34.600 --> 00:24:39.600 not to say that every actor is always best qualified to be his own explainer. 248 00:24:39.600 --> 00:24:44.480 It may be that Einstein can explain better than anyone else why and how he came up with 249 00:24:44.480 --> 00:25:14.480 The Theory of Relativity when he did, but this might not be so. As a matter of fact, it may well be possible that a historian of science may understand Einstein and the influences leading to his discovery better than he himself did or could, and this would be possible because the influencing factors or the rules that determined one's actions might only be subconscious, or they might be so obvious that one would fail to notice them simply on account of this. The following analogy may be quite helpful in understanding the curious fact 250 00:25:14.480 --> 00:25:17.920 that others might understand a person better than the person himself. 251 00:25:17.920 --> 00:25:24.080 Take, for example, a public speech. Of course, to a large extent, the person giving the speech can 252 00:25:24.080 --> 00:25:29.600 probably give reasons for saying what he says and formulate the influences that led him to see things 253 00:25:29.600 --> 00:25:35.680 the way he does. He can probably do so better than anyone else. And yet, in saying what he says, 254 00:25:35.680 --> 00:25:41.520 he follows rules habitually and unconsciously that he could hardly, or only with great difficulties, 255 00:25:41.520 --> 00:25:52.520 He also follows certain rules of grammar when he says what he says, but quite often he would be completely unable to formulate these rules, even though they clearly influence his actions. 256 00:25:52.520 --> 00:26:01.520 The historian who understands someone's actions better than the person himself is quite analogous to the grammarian analyzing the sentence structure of the public speaker. 257 00:26:01.520 --> 00:26:14.520 Both reconstruct and explicitly formulate the rules that are actually followed, but that could not, or only with extreme difficulties, could be formulated by the speaker himself. 258 00:26:14.520 --> 00:26:22.520 The speaker may not be able to formulate all the rules that he follows, and may need the professional historian or grammarian to help him. 259 00:26:22.520 --> 00:26:23.520 to help him. 260 00:26:23.520 --> 00:26:30.880 But it is of great importance to realize that the truth criterion for the grammarian's explanation 261 00:26:30.880 --> 00:26:36.840 would nonetheless be that the speaker would have to be able, in principle, to verify the 262 00:26:36.840 --> 00:26:45.240 correctness of the explanation after what was previously known implicitly was made explicit. 263 00:26:45.240 --> 00:26:50.600 In order for the grammarian's or historian's explanations to be correct, the actor would 264 00:26:50.600 --> 00:26:56.600 would need to be able to recognize these rules as being those which indeed influenced his 265 00:26:56.600 --> 00:27:03.360 actions, so much for the logic of historical research as necessarily reconstructive research 266 00:27:03.360 --> 00:27:05.840 based on understanding. 267 00:27:05.840 --> 00:27:09.960 The argument establishing the impossibility of causal predictions in the field of human 268 00:27:09.960 --> 00:27:15.480 knowledge and actions now might have left the impression that if this is so, then forecasting 269 00:27:15.480 --> 00:27:18.700 can be nothing but successful or unsuccessful guessing. 270 00:27:18.700 --> 00:27:23.660 This impression, however, would be just as wrong as it would be wrong to think that one 271 00:27:23.660 --> 00:27:29.220 can predict human action in the same way as one can predict the growing stages of apples. 272 00:27:29.220 --> 00:27:34.100 It is here where the unique Misesian insight into the interplay of economic theory and 273 00:27:34.100 --> 00:27:37.100 history enters the picture. 274 00:27:37.100 --> 00:27:43.940 In fact, the reason why the social and economic future cannot be regarded as entirely and 275 00:27:43.940 --> 00:27:48.700 and Absolutely Uncertain should not be too hard to understand. 276 00:27:48.700 --> 00:27:54.380 The impossibility of causal predictions in the field of action was proven by means of 277 00:27:54.380 --> 00:28:00.920 an a priori argument, and this argument incorporated a priori true knowledge about actions as such 278 00:28:00.920 --> 00:28:06.180 that they cannot be conceived of as governed by time-invariantly operating causes. 279 00:28:06.180 --> 00:28:13.660 Thus, while economic forecasting will indeed always be a systematically unteachable art, 280 00:28:13.660 --> 00:28:19.860 It is at the same time true that all economic forecasts must be thought of as being constrained 281 00:28:19.860 --> 00:28:24.540 by the existence of a priori knowledge about actions as such. 282 00:28:24.540 --> 00:28:29.740 Take for example the quantity theory of money, the praxeological proposition that if you 283 00:28:29.740 --> 00:28:34.820 increase the quantity of money and the demand for money stays constant, then the purchasing 284 00:28:34.820 --> 00:28:37.140 power of money will fall. 285 00:28:37.140 --> 00:28:42.660 Our a priori knowledge about actions as such informs us that it is impossible to predict 286 00:28:42.660 --> 00:29:01.660 We cannot predict scientifically whether or not the quantity of money will be increased, decreased, or left unchanged, nor is it possible to predict scientifically whether or not, regardless of what happens to the quantity of money, the demand for money to be held in cash balances will go up or down or stay the same. 287 00:29:01.660 --> 00:29:09.500 We cannot claim to be able to predict such things because we cannot predict future states of knowledge of people, and yet 288 00:29:09.640 --> 00:29:16.920 these states evidently influence what happens with respect to the quantity of money and the demand for money. Then our theory, our 289 00:29:17.640 --> 00:29:19.260 praxeological knowledge 290 00:29:19.260 --> 00:29:25.820 incorporated in the quantity theory, has a rather limited usefulness for one's business of predicting the economic future. 291 00:29:25.820 --> 00:29:33.820 The theory would not allow one to predict future economic events, even if, say, it is an established fact that the quantity of money had been expanded. 292 00:29:33.820 --> 00:29:42.820 One would still be unable to predict what would happen to the demand for money, and though, of course, concurrent events regarding the demand for money do affect the shape of things to come, 293 00:29:42.820 --> 00:29:49.820 is to come, and cancel, increase, decrease, accelerate or decelerate the effects stemming from the source of an increased money supply, 294 00:29:49.820 --> 00:29:55.820 such concurrent changes cannot in principle be predicted or experimentally held constant. 295 00:29:55.820 --> 00:30:09.820 It is an outright absurdity to conceive of subjective knowledge whose every change has an impact on action as predictable on the basis of antecedent variables and is capable of being held constant. 296 00:30:09.820 --> 00:30:14.380 The very experimenter who wanted to hold knowledge constant would in fact have to 297 00:30:14.380 --> 00:30:19.260 presuppose that his knowledge, specifically his knowledge regarding the experiment's outcome, 298 00:30:19.260 --> 00:30:25.260 could not be assumed to be constant over time. The quantity theory of money, then, cannot render 299 00:30:25.260 --> 00:30:31.980 any specific economic event certain or probable on the basis of a formula employing prediction 300 00:30:31.980 --> 00:30:38.460 constants. However, the theory would nonetheless restrict the range of possibly correct predictions, 301 00:30:38.460 --> 00:30:47.460 And it would do this not as an empirical theory, but rather as a praxeological theory, acting as a logical constraint on our prediction-making. 302 00:30:47.460 --> 00:30:58.460 Predictions that are not in line with such knowledge, in our case the quantity theory, are systematically flawed, and making them leads to systematically increasing numbers of forecasting errors. 303 00:30:58.460 --> 00:31:13.460 This does not mean that someone who based his predictions on correct praxeological reasoning would necessarily have to be a better predictor of future economic events than someone who arrived at his predictions through logically flawed deliberations and chains of reasoning. 304 00:31:13.460 --> 00:31:21.460 It means that in the long run, the praxeologically enlightened forecaster would average better than the unenlightened ones. 305 00:31:21.460 --> 00:31:42.460 It is possible to make the wrong prediction in spite of the fact that one has correctly identified the event increase in the money supply, and in spite of one's praxeologically correct reasoning that such an event is by logical necessity connected with the event drop in the purchasing power of money. 306 00:31:42.460 --> 00:31:47.460 For one might go wrong predicting what will occur to the event demand for money. 307 00:31:47.460 --> 00:31:53.460 One might have predicted a constant demand for money, but the demand might actually increase. 308 00:31:53.460 --> 00:31:57.460 Thus, the predicted inflation might not show up as expected. 309 00:31:57.460 --> 00:32:05.460 And on the other hand, it is equally possible that a person could make a correct forecast, i.e. there will be no drop in purchasing power, 310 00:32:05.460 --> 00:32:11.460 in spite of the fact that he was wrongly convinced that a rise in the quantity of money had nothing to do with the money's purchasing power. 311 00:32:11.460 --> 00:32:25.460 For it may be that another concurrent change occurred, the demand for money increased, which counteracted his wrong assessment of causes and consequences, and accidentally happened to make his prediction right. 312 00:32:25.460 --> 00:32:55.460 However, and this brings me back to my point that praxeology logically constrains our predictions of economic events, what if we assume that all forecasters, including those with and without sound praxeological knowledge, are on the average equally well-equipped to anticipate other concurrent changes? What if they are on the average equally lucky guessers of the social and economic future? Evidently, we must conclude then that forecasters making predictions in recognition of, and 313 00:32:55.460 --> 00:33:05.460 and in accordance with praxeological laws, like the quantity theory of money, will be more successful than that group of forecasters, which is ignorant of praxeology. 314 00:33:05.460 --> 00:33:16.460 It is impossible to build a prediction formula, which employs the assumption of time-invariantly operating causes, but would enable us to scientifically forecast changes in the demand for money. 315 00:33:16.460 --> 00:33:24.460 The demand for money is necessarily dependent on people's future states of knowledge, and the future knowledge is unpredictable. 316 00:33:24.460 --> 00:33:54.460 And thus, praxeological knowledge has very limited predictive utility, yet of all forecasters who correctly forecast that a change, such as an increase in the demand for money, will take place, and who equally correctly perceive that an increase in the quantity of money has indeed happened, only those who recognize the quantity theory of money will make a correct prediction, and those whose convictions are at variance with praxeology will necessarily go wrong. 317 00:33:54.460 --> 00:34:15.460 To understand the logic of economic forecasting and the practical function of praxeological reasoning, then, is to view the a priori theorems of economics as acting as logical constraints on empirical prediction, and as imposing logical limits on what can or cannot happen in the future.