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NOTE Preface

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Theory and History by Ludwig von Mises

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Narrated by John Pruden

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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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Visit Mises.org for a world of free market literature, media and discussion.

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Preface

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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.

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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.

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The first, which established Mises in the front rank of economists, was The Theory of

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Money and Credit, 1912, which for the first time integrated the theory of money and the

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theory of relative prices and outlined his later theory of the business cycle.

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Mises' second great work was Socialism, 1922, which provided the definitive comprehensive

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of Critique of Socialism and demonstrated that a socialist order could not calculate

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economically.

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The third was his stupendous treatise, Human Action, 1949, which set forth an entire structure

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of economics and analysis of acting man.

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All three of these works have made their mark in economics and have been featured in the

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Austrian Revival that has flowered in the United States over the past decade.

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But Mises's fourth and last great work, Theory and History, 1957, has made remarkably little

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impact and has rarely been cited even by the young economists of the recent Austrian Revival.

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It remains by far the most neglected masterwork of Mises, and yet it provides the philosophical

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It is Mises' great methodological work, explaining the basis of his approach to economics and

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providing scintillating critiques of such fallacious alternatives as historicism, scientism

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and Marxian dialectical materialism.

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It might be thought that, despite its great importance, theory in history has not made

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its mark because, in this age of blind academic specialization, economics will have nothing

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to do with anything that smacks of the philosophic.

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Certainly hyper-specialization plays a part, but in the last few years, interest in methodology

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and the basic underpinnings of economics has blossomed, and one would think that at least

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the specialists in this area would find much to discuss and absorb in this book.

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And economists are surely not so far gone in jargon and muddled writing that they would

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fail to respond to Mises's lucid and sparkling prose.

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It is likely instead that the neglect of theory and history has more to do with the content

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of its philosophical message.

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For while many people are aware of the long and lone struggle that Ludwig von Mises waged

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against Statism and on behalf of laissez-faire.

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Few realize that there is far greater resistance in the economics profession to Mises's methodology

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than there is to his politics.

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Adherence to the free market, after all, is now not uncommon among economists, albeit

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not with Mises's unerring consistency.

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But few are ready to adopt the characteristically Austrian method which Mises systematized

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and named praxeology.

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At the heart of Mises and praxeology is the concept with which he appropriately begins

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theory and history, methodological dualism, the crucial insight that human beings must

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be considered and analyzed in a way and with a methodology that differs radically from

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the analysis of stones, planets, atoms or molecules.

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Why?

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Because quite simply it is the essence of human beings that they act, that they have

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goals and purposes, and that they try to achieve those goals.

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Stones, atoms, planets have no goals or preferences, hence they do not choose among alternative

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courses of action.

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Atoms and planets move or are moved.

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They cannot choose, select paths of action, or change their minds.

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Man and women can and do. Therefore, atoms and stones can be investigated, their courses

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charted and their paths plotted and predicted, at least in principle to the minutest quantitative

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detail. People cannot. Every day, people learn, adopt new values and goals, and change their

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minds. People cannot be slotted and predicted as can objects without minds or without the

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the capacity to learn and choose.

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And now we can see why the economics profession has put up such massive resistance to the

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basic approach of Ludwig von Mises.

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For economics has embraced the myth of what Mises has properly and scornfully referred

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to as scientism.

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The idea that the only truly scientific approach to the study of man is to ape the approach

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of the Physical Sciences, in particular, of its most prestigious branch, physics.

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To become truly scientific, like physics and the other natural sciences then, economics

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must shun such concepts as purposes, goals and learning.

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It must abandon man's mind and right only of mere events.

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It must not talk of changing one's mind, because it must claim that events are predictable

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Since in the words of the original motto of the econometric society, science is prediction.

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And to become a hard or real science, economics must treat individuals not as unique creatures,

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each with his or her own goals and choices, but as homogeneous and therefore predictable

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bits of data.

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One reason orthodox economic theory has always had great difficulty with the crucial concept

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of the Entrepreneur, is that each entrepreneur is clearly and obviously unique, and neoclassical

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economics cannot handle individual uniqueness.

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Furthermore, real science, it is alleged, must operate on some variant of positivism.

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Thus, in physics, the scientist is confronted with a number of homogeneous, uniform bits

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The Theory of Money and Credit

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and the observable features of an eclipse.

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In the old positivist variant, he verifies the theory by this empirical check.

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In the more nihilistic neopositivism of Karl Popper, he can only falsify or not falsify

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a theory in this manner.

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In any case, his theories must always be held tentatively and can never, at least not officially,

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be embraced as definitively true.

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where he may always find that other alternative theories may be able to explain wider classes

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of facts that some new facts may run counter to or falsify the theory.

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The scientist must always wear at least the mask of humility and open-mindedness.

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But it was part of the genius of Ludwig von Mises to see that sound economics has never

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were preceded in this way, and to elaborate the good reasons for this curious fact.

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There's been much unnecessary confusion over Mises' rather idiosyncratic use of the term

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a priori, and the enthusiasts for modern scientific methods have been able to use it to dismiss

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him as a mere unscientific mystic.

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Mises saw that students of human action are at once in better and in worse and certainly

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in Different Shape from Students of Natural Science.

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The physical scientist looks at homogenous bits of events and gropes his way toward finding

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and testing explanatory or casual theories for those empirical events.

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But in human history, we, as human beings ourselves, are in a position to know the cause

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of events already, namely, the primordial fact that human beings have goals and purposes

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and Act to attain them.

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And this fact is known not tentatively and hesitantly, but absolutely and apodictically.

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One example that Mises liked to use in his class to demonstrate the difference between

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two fundamental ways of approaching human behavior was in looking at Grand Central Station

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behavior during rush hour.

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The objective or truly scientific behaviorist, he pointed out, would observe the empirical

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For example, people rushing back and forth aimlessly at certain predictable times of

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day.

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And that is all he would know.

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But the true student of human action would start from the fact that all human behavior

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is purposive.

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And he would see the purpose is to get from home to the train to work in the morning,

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the opposite at night, etc.

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It is obvious which one would discover and know more about human behavior, and therefore

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which one would be the genuine scientist.

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It is from this axiom, the fact of purpose of human action, that all of economic theory

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is deduced.

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Economics explores the logical implications of the pervasive fact of action, and since

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Since we know absolutely that human action is purposive, we know with equal certainty

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the conclusions at each step of the logical chain.

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There is no need to test this theory, if indeed that concept has much sense in this context.

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Is the fact of human purposive action verifiable?

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Is it empirical?

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Yes, but certainly not in the precise or quantitative way that the imitators of physics are used

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II.

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The empiricism is broad and qualitative, stemming from the essence of human experience.

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It has nothing to do with statistics or historical events.

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Furthermore, it is dependent on the fact that we are all human beings and can therefore

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use this knowledge to apply it to others of the same species.

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Still less is the axiom of purpose of action falsifiable.

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It is so evident, once mentioned and considered, that it clearly forms the very marrow of our

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experience in the world.

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It is just as well that economic theory does not need testing, for it is impossible to

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test it in any way by checking its propositions against homogeneous bits of uniform events,

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for there are no such events.

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The use of statistics and quantitative data may try to mask this fact, but their seeming

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Making precision is only grounded on historical events that are not homogeneous in any sense.

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Each historical event is a complex, unique resultant of many causal factors.

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Since it is unique, it cannot be used for a positivistic test, and since it is unique,

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it cannot be combined with other events in the form of statistical correlations and achieve

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any meaningful result.

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In analyzing the business cycle, for example, it is not legitimate to treat each cycle as

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strictly homogeneous to every other and therefore to add, multiply, manipulate, and correlate

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data.

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To average two time series, for example, and to proudly proclaim that Series X has an average

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four-month lead compared to Series Y at some phase of the cycle, means next to nothing.

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For A. No particular time series may even have the four-month lead lag, and the lags

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may and will range widely.

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And B. The average of any past series has no relevance to the data of the future, which

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will have its own ultimately unpredictable differences from the previous cycles.

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By demolishing the attempted use of statistics to frame or test a theory, Ludwig von Mises

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has been accused of being a pure theorist with no interest in or respect for history.

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On the contrary, and this is the central theme of theory and history, it is the positivists

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and behaviorists who lack respect for the unique historical fact by trying to compress

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these complex historical events into the Procrustian mold of movements of atoms or planets.

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In human affairs, the complex historical event itself needs to be explained by various theories

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as far as possible, but it can never be completely or precisely determined by any theory.

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The embarrassing fact that the forecasts of would-be economic soothsayers have always

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faced an abysmal record, especially the ones that pretend to quantitative precision, is

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is met in mainstream economics by the determination to fine-tune the model once more and try again.

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It is above all Ludwig von Mises who recognizes the freedom of mind and of choice at the irreducible

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heart of the human condition and who realizes therefore that the scientific urge to determinism

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and complete predictability is a search for the impossible and is therefore profoundly

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Theory, unscientific.

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Among some younger Austrians, an unwillingness to challenge the prevailing methodological

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orthodoxy has led to either the outright adoption of positivism or else the abandonment of theory

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altogether on behalf of a vaguely empirical institutionalism.

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Immersion in theory and history would help both groups to realize that true theory is

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not divorced from the world of real acting man and that one can abandon

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scientific myths while still using the apparatus of deductive theory.

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Austrian economics will never enjoy a genuine renaissance until economists read and absorb

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the vital lessons of this unfortunately neglected work. Without praxeology,

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no economics can be truly Austrian or truly sound.

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Murray N. Rothbard, New York City, 1985