Theory and History by Ludwig von Mises
Narrated by John Pruden
This audiobook is produced by the Ludwig von Mises Institute, advancing the Scholarship of Liberty in the tradition of the Austrian School.
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Preface
Ludwig von Mises published many books and articles in his long and productive life, each of them making important contributions to the theory and application of economic science.
But there stands out among them four towering masterpieces, immortal monuments to the work of the greatest economist and scientist of human action in our century.
The first, which established Mises in the front rank of economists, was The Theory of
Money and Credit, 1912, which for the first time integrated the theory of money and the
theory of relative prices and outlined his later theory of the business cycle.
Mises' second great work was Socialism, 1922, which provided the definitive comprehensive
of Critique of Socialism and demonstrated that a socialist order could not calculate
economically.
The third was his stupendous treatise, Human Action, 1949, which set forth an entire structure
of economics and analysis of acting man.
All three of these works have made their mark in economics and have been featured in the
Austrian Revival that has flowered in the United States over the past decade.
But Mises's fourth and last great work, Theory and History, 1957, has made remarkably little
impact and has rarely been cited even by the young economists of the recent Austrian Revival.
It remains by far the most neglected masterwork of Mises, and yet it provides the philosophical
It is Mises' great methodological work, explaining the basis of his approach to economics and
providing scintillating critiques of such fallacious alternatives as historicism, scientism
and Marxian dialectical materialism.
It might be thought that, despite its great importance, theory in history has not made
its mark because, in this age of blind academic specialization, economics will have nothing
to do with anything that smacks of the philosophic.
Certainly hyper-specialization plays a part, but in the last few years, interest in methodology
and the basic underpinnings of economics has blossomed, and one would think that at least
the specialists in this area would find much to discuss and absorb in this book.
And economists are surely not so far gone in jargon and muddled writing that they would
fail to respond to Mises's lucid and sparkling prose.
It is likely instead that the neglect of theory and history has more to do with the content
of its philosophical message.
For while many people are aware of the long and lone struggle that Ludwig von Mises waged
against Statism and on behalf of laissez-faire.
Few realize that there is far greater resistance in the economics profession to Mises's methodology
than there is to his politics.
Adherence to the free market, after all, is now not uncommon among economists, albeit
not with Mises's unerring consistency.
But few are ready to adopt the characteristically Austrian method which Mises systematized
and named praxeology.
At the heart of Mises and praxeology is the concept with which he appropriately begins
theory and history, methodological dualism, the crucial insight that human beings must
be considered and analyzed in a way and with a methodology that differs radically from
the analysis of stones, planets, atoms or molecules.
Why?
Because quite simply it is the essence of human beings that they act, that they have
goals and purposes, and that they try to achieve those goals.
Stones, atoms, planets have no goals or preferences, hence they do not choose among alternative
courses of action.
Atoms and planets move or are moved.
They cannot choose, select paths of action, or change their minds.
Man and women can and do. Therefore, atoms and stones can be investigated, their courses
charted and their paths plotted and predicted, at least in principle to the minutest quantitative
detail. People cannot. Every day, people learn, adopt new values and goals, and change their
minds. People cannot be slotted and predicted as can objects without minds or without the
the capacity to learn and choose.
And now we can see why the economics profession has put up such massive resistance to the
basic approach of Ludwig von Mises.
For economics has embraced the myth of what Mises has properly and scornfully referred
to as scientism.
The idea that the only truly scientific approach to the study of man is to ape the approach
of the Physical Sciences, in particular, of its most prestigious branch, physics.
To become truly scientific, like physics and the other natural sciences then, economics
must shun such concepts as purposes, goals and learning.
It must abandon man's mind and right only of mere events.
It must not talk of changing one's mind, because it must claim that events are predictable
Since in the words of the original motto of the econometric society, science is prediction.
And to become a hard or real science, economics must treat individuals not as unique creatures,
each with his or her own goals and choices, but as homogeneous and therefore predictable
bits of data.
One reason orthodox economic theory has always had great difficulty with the crucial concept
of the Entrepreneur, is that each entrepreneur is clearly and obviously unique, and neoclassical
economics cannot handle individual uniqueness.
Furthermore, real science, it is alleged, must operate on some variant of positivism.
Thus, in physics, the scientist is confronted with a number of homogeneous, uniform bits
The Theory of Money and Credit
and the observable features of an eclipse.
In the old positivist variant, he verifies the theory by this empirical check.
In the more nihilistic neopositivism of Karl Popper, he can only falsify or not falsify
a theory in this manner.
In any case, his theories must always be held tentatively and can never, at least not officially,
be embraced as definitively true.
where he may always find that other alternative theories may be able to explain wider classes
of facts that some new facts may run counter to or falsify the theory.
The scientist must always wear at least the mask of humility and open-mindedness.
But it was part of the genius of Ludwig von Mises to see that sound economics has never
were preceded in this way, and to elaborate the good reasons for this curious fact.
There's been much unnecessary confusion over Mises' rather idiosyncratic use of the term
a priori, and the enthusiasts for modern scientific methods have been able to use it to dismiss
him as a mere unscientific mystic.
Mises saw that students of human action are at once in better and in worse and certainly
in Different Shape from Students of Natural Science.
The physical scientist looks at homogenous bits of events and gropes his way toward finding
and testing explanatory or casual theories for those empirical events.
But in human history, we, as human beings ourselves, are in a position to know the cause
of events already, namely, the primordial fact that human beings have goals and purposes
and Act to attain them.
And this fact is known not tentatively and hesitantly, but absolutely and apodictically.
One example that Mises liked to use in his class to demonstrate the difference between
two fundamental ways of approaching human behavior was in looking at Grand Central Station
behavior during rush hour.
The objective or truly scientific behaviorist, he pointed out, would observe the empirical
For example, people rushing back and forth aimlessly at certain predictable times of
day.
And that is all he would know.
But the true student of human action would start from the fact that all human behavior
is purposive.
And he would see the purpose is to get from home to the train to work in the morning,
the opposite at night, etc.
It is obvious which one would discover and know more about human behavior, and therefore
which one would be the genuine scientist.
It is from this axiom, the fact of purpose of human action, that all of economic theory
is deduced.
Economics explores the logical implications of the pervasive fact of action, and since
Since we know absolutely that human action is purposive, we know with equal certainty
the conclusions at each step of the logical chain.
There is no need to test this theory, if indeed that concept has much sense in this context.
Is the fact of human purposive action verifiable?
Is it empirical?
Yes, but certainly not in the precise or quantitative way that the imitators of physics are used
II.
The empiricism is broad and qualitative, stemming from the essence of human experience.
It has nothing to do with statistics or historical events.
Furthermore, it is dependent on the fact that we are all human beings and can therefore
use this knowledge to apply it to others of the same species.
Still less is the axiom of purpose of action falsifiable.
It is so evident, once mentioned and considered, that it clearly forms the very marrow of our
experience in the world.
It is just as well that economic theory does not need testing, for it is impossible to
test it in any way by checking its propositions against homogeneous bits of uniform events,
for there are no such events.
The use of statistics and quantitative data may try to mask this fact, but their seeming
Making precision is only grounded on historical events that are not homogeneous in any sense.
Each historical event is a complex, unique resultant of many causal factors.
Since it is unique, it cannot be used for a positivistic test, and since it is unique,
it cannot be combined with other events in the form of statistical correlations and achieve
any meaningful result.
In analyzing the business cycle, for example, it is not legitimate to treat each cycle as
strictly homogeneous to every other and therefore to add, multiply, manipulate, and correlate
data.
To average two time series, for example, and to proudly proclaim that Series X has an average
four-month lead compared to Series Y at some phase of the cycle, means next to nothing.
For A. No particular time series may even have the four-month lead lag, and the lags
may and will range widely.
And B. The average of any past series has no relevance to the data of the future, which
will have its own ultimately unpredictable differences from the previous cycles.
By demolishing the attempted use of statistics to frame or test a theory, Ludwig von Mises
has been accused of being a pure theorist with no interest in or respect for history.
On the contrary, and this is the central theme of theory and history, it is the positivists
and behaviorists who lack respect for the unique historical fact by trying to compress
these complex historical events into the Procrustian mold of movements of atoms or planets.
In human affairs, the complex historical event itself needs to be explained by various theories
as far as possible, but it can never be completely or precisely determined by any theory.
The embarrassing fact that the forecasts of would-be economic soothsayers have always
faced an abysmal record, especially the ones that pretend to quantitative precision, is
is met in mainstream economics by the determination to fine-tune the model once more and try again.
It is above all Ludwig von Mises who recognizes the freedom of mind and of choice at the irreducible
heart of the human condition and who realizes therefore that the scientific urge to determinism
and complete predictability is a search for the impossible and is therefore profoundly
Theory, unscientific.
Among some younger Austrians, an unwillingness to challenge the prevailing methodological
orthodoxy has led to either the outright adoption of positivism or else the abandonment of theory
altogether on behalf of a vaguely empirical institutionalism.
Immersion in theory and history would help both groups to realize that true theory is
not divorced from the world of real acting man and that one can abandon
scientific myths while still using the apparatus of deductive theory.
Austrian economics will never enjoy a genuine renaissance until economists read and absorb
the vital lessons of this unfortunately neglected work. Without praxeology,
no economics can be truly Austrian or truly sound.
Murray N. Rothbard, New York City, 1985