Economic Controversies

Economic

Controversies

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Economic

Controversies Murray N. Rothbard

LvMI MISES INSTITUTE

Copyright © 2011 Ludwig von Mises Institute and published under the Creative Commons Attribution License 3.0. http:// creativecommons.org/licenses/by/3.0/ Published by Ludwig von Mises Institute 518 West Magnolia Avenue Auburn, Alabama 36832 Mises.org ISBN: 978-1-933550-96-1

Contents Introduction by Gene Epstein . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix

Section One: Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1. The Mantle of Science . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2. What is the Proper Way to Study Man? . . . . . . . . . . . . . . . .25 3. Praxeology as the Method of the Social Sciences . . . . . . . .29 4. Praxeology: The Methodology of Austrian Economics . . . .59 5. Praxeology, Value Judgments, and Public Policy . . . . . . . . .81 6. In Defense of “Extreme Apriorism” . . . . . . . . . . . . . . . . . .103 7. Praxeology: Reply to Mr. Schuller . . . . . . . . . . . . . . . . . . . .113 8. The Hermeneutical Invasion of Philosophy and Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119

Section Two: The Austrian School

. . . . . . . . . . . . . . . 137

9. New Light on the Prehistory of the Austrian School . . . . .139 10. The Present State of Austrian Economics . . . . . . . . . . . . .161 11. Ludwig von Mises and the Paradigm for Our Age . . . . . . .225 12. Value Implications of Economic Theory . . . . . . . . . . . . . . .241 13. The Myth of Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . .253 14. Breaking Out of the Walrasian Box: Schumpeter and Hansen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .261 15. Professor Rolph on the Discounted Marginal Productivity Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .277 v

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Economic Controversies

16. Professor Kirzner on Entrepreneurship . . . . . . . . . . . . . . . .281 17. Toward a Reconstruction of Utility and Welfare Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .289

Section Three: Property and the Public Sector . . 335 18. The Politics of Political Economists . . . . . . . . . . . . . . . . . .337 19. Justice and Property Rights . . . . . . . . . . . . . . . . . . . . . . . . .347 20. Law, Property Rights, and Air Pollution . . . . . . . . . . . . . . .367 21. The Fallacy of the “Public Sector” . . . . . . . . . . . . . . . . . . .419 22. Statistics: Achilles’s Heel of Government . . . . . . . . . . . . .427 23. How and How Not to Desocialize . . . . . . . . . . . . . . . . . . .433

Section Four: Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . 447 24. The Myth of Neutral Taxation . . . . . . . . . . . . . . . . . . . . . .449 25. The Myth of Tax “Reform” . . . . . . . . . . . . . . . . . . . . . . . . .503 26. The Consumption Tax: A Critique . . . . . . . . . . . . . . . . . .515 27. The Case Against the Flat Tax . . . . . . . . . . . . . . . . . . . . . .533 28. The Uneasy Case for Degressive Taxation: A Critique of Blum and Kalven . . . . . . . . . . . . . . . . . . . . .551 29. The Single Tax: Economic and Moral Implications . . . . . .575 30. The Value-Added Tax is Not the Answer . . . . . . . . . . . . .587 31. A Reply to Georgist Criticisms . . . . . . . . . . . . . . . . . . . . . .593

Section Five: Trade and Freedom . . . . . . . . . . . . . . . . 599 32. Freedom, Inequality, Primitivism, and the Division of Labor . . . . . . . . . . . . . . . . . . . . . . . . . .601 33. Restrictionist Pricing of Labor . . . . . . . . . . . . . . . . . . . . . .635 34. Mercantilism: A Lesson for Our Times? . . . . . . . . . . . . . . .641 35. Capitalism versus Statism . . . . . . . . . . . . . . . . . . . . . . . . . .655 36. A Future of Peace and Capitalism . . . . . . . . . . . . . . . . . . .671

Contents vii

Section Six: Money, Banking, and Calculation . . . 683 37. The Austrian Theory of Money . . . . . . . . . . . . . . . . . . . . .685 38. Money, the State, and Modern Mercantilism . . . . . . . . . . .709 39. Austrian Definitions of the Supply of Money . . . . . . . . . . .727 40. Gold vs. Fluctuating Fiat Exchange Rates . . . . . . . . . . . . .741 41. The Case For a Genuine Gold Dollar . . . . . . . . . . . . . . . . .755 42. Inflation and the Business Cycle: The Collapse of the Keynesian Paradigm . . . . . . . . . . . . .775 43. Lange, Mises and Praxeology: The Retreat from Marxism . . . . . . . . . . . . . . . . . . . . . . . . .801 44. Ludwig von Mises and Economic Calculation Under Socialism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .815 45. The End of Socialism and the Calculation Debate Revisited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .827 46. The Myth of Free Banking in Scotland . . . . . . . . . . . . . . .859 47. Aurophobia: Or, Free Banking on What Standard? . . . . . .879

Section Seven: Criticism

. . . . . . . . . . . . . . . . . . . . . . . . . 893

48. Milton Friedman Unraveled . . . . . . . . . . . . . . . . . . . . . . . .895 49. Paul Samuelson’s Economics, Ninth Edition . . . . . . . . . . . .913 50. Heilbroner’s Economic Means and Social Ends . . . . . . . . . .919 51. Buchanan and Tullock’s The Calculus of Consent . . . . . . . .927 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .933 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .961

Introduction

I

t was nearly forty years ago that Murray Rothbard changed my life. I was then a PhD candidate in economics at the New School for Social Research in downtown Manhattan, while also teaching Principles courses at a local university. And I was rapidly losing interest in the whole subject. Bored by the prattling of the left-wing crowd who dominated the New School, I could find nothing very satisfying in mainstream economics either. The New School’s left-wingers certainly cared about achieving a free society. But their radical agenda mainly consisted of the “instrumentalist” ideas of the econ department’s emeritus professor Adolph Lowe, which boiled down to coercing people into following the dictates of elitists like him. My only real objection to conventional economics was that it also bored me. If a theory like “perfect competition” was remote from reality, it seemed like a judgment on the imperfections of capitalism. After all, to the degree that capitalism was not perfectly competitive, it fell prey to the evils of “imperfect competition,” which might require intervention from antitrust. As a typically zonked-out product of conventional schooling, I vaguely believed, that to the degree that any textbook theory failed to explain reality, so much the worse for reality. (Not long ago I spoke with an econ grad student who, when pressed, believed this quite explicitly.) Always a compulsive book-browser, I had more than once leafed through a two-volume work titled Man, Economy, and State in the New School library, whose author, Murray Rothbard, I had barely heard of. After the third or fourth look, I finally began reading the book—and experienced one eureka moment after another. Two ix

x Economic Controversies especially memorable moments reflected the leftist tradition in which I was then mired. First, I learned that, if leftists thought “capital” deserved no share of the economic bounty, they were in a sense more right than they knew. Rothbard explained that, in a free market, there were no financial returns to owners of capital goods as such. Since capital goods consisted of such items as factories, machinery, offices, and desks, these goods were entirely the product of labor and land (or resources). So the monetary value of newly created capital goods is entirely attributable to the purchase of land and labor, with nothing remaining for capital goods owners. How, then, did capital goods owners make any money at all? The money they received came in two forms: interest payments for advancing resources in the present and profits for their entrepreneurial foresight—unless, of course, they were unsuccessful entrepreneurs and suffered losses. Second was Rothbard’s devastating refutation of the theory of imperfect or “monopolistic” competition—dear to leftists’ hearts, since it highlighted the irrationality of capitalism. A cornerstone of this theory is that a monopolistic competitor like “Marioni Brothers’ Barbershop” (monopolistic because there is only one set of Marioni Brothers; competitive, since there are many barbershops), always operate with excess capacity. Economist Paul Samuelson had in fact targeted barber shops in his best-selling Principles text, observing that “The barbershop has excess capacity, with empty chairs much of the time,” as he inveighed against the “wasteful social losses” resulting.1 Even before I read Rothbard, it occurred to me that, in this case at least, Professor Samuelson may have been missing something. Given his flexible work schedule, he may have had a habit of going for his haircut on a weekday, which would explain why he kept noticing empty chairs. Had he gone instead on Saturdays, he might have noticed that all the barber chairs were full, and that business was actually backed up. It then might have occurred to him that our

1

Paul A. Samuelson, Economics, 9th ed. (New York: McGraw-Hill, 1973), p. 518.

Introduction xi

hypothetical Marioni Brothers were not so dumb as to waste their money on excess capacity. The problem they actually faced as businessmen was the classic tradeoff between peaks and troughs in demand. Had they not had empty chairs during the week, they wouldn’t have been able to take advantage of the glut in demand on weekends. Such were my tentative doubts. What Rothbard exposed was the preposterousness of the whole formulation. For why assume that all such monopolistic competitors necessarily invest in excess capacity? “To plan a plant for producing x units,” he quotes economist Roy Harrod observing, “while knowing that it will only be possible to maintain an output of x – y units, is surely to suffer from schizophrenia.”2 It made no more sense to believe that all such businessmen would waste funds on excess as it was to believe that they would all consistently underinvest and plan on inadequate capacity. Then came what for me—robotically drawing all those cost and demand curves with the aid of differential calculus—was the coup de grace. Rothbard demonstrated that the whole naïve error hinged on the technicalities of geometry. The theory was simply a prisoner of the way the demand curve was made tangent to the cost curve! He then adroitly showed two different ways of drawing the graph, without violating any of the assumptions. The miraculous result: The monopolistic competitor was now operating at the low point of his average cost curve, or at full capacity.3 I found such moments profoundly empowering, making me realize that, whenever I thought about economics outside formal straitjackets, I naturally fell back on modes of reasoning used by Rothbard and his mentor, Ludwig von Mises. That’s why the very term, “Austrian economics,” is a kind of redundancy. Whenever people think sensibly about economics, they think like Austrians—one key reason why even the mainstream can have a few things to teach us, especially when they’re writing mere journalism.

2

Murray Rothbard, Man, Economy, and State (Los Angeles: Nash, 1970), p. 642; combined with Power and Market to become the scholar’s edition (Auburn, Ala.: Ludwig von Mises Institute, 2009), p. 732. 3 Rothbard, Man, Economy, and State, pp. 642–45; scholar’s edition, pp. 732–36.

xii Economic Controversies After finishing Man, Economy, and State, I discovered the LaissezFaire bookshop, then a well-stocked store on Mercer Street, which regrettably shut down years ago. Browsing at that bookshop virtually every Saturday, I gradually bought up all the Rothbard I could find, plus all the Mises, F.A. Hayek, and Israel Kirzner. I formed a reading group in Austrian economics, attended lateafternoon seminars chaired by Kirzner at New York University—and even barged into one of Rothbard’s classes at Brooklyn Polytechnic Institute, where he taught for many years. I say “barged in” because somehow I forgot to ask him if I could sit in and audit. That might explain why he gave me a perplexed look when I raised my hand to ask a question, a reaction that discouraged me from chatting with him afterward. (The session must have been somewhere in the middle of the semester, since it was devoted entirely to the mundane task of reviewing the material to prepare students for the mid-term exam.) When I became a senior economist at the New York Stock Exchange, the director I reported to once told me, “Gene, you’re the only guy I ever met who reads economics for fun.” I was honestly surprised, and might have remarked that if everyone read Rothbard and the Austrians, they might have just as much fun. My only real, albeit brief, conversation with Rothbard occurred over the phone in October 1993, by which point he was teaching at the University of Nevada in Las Vegas, and I had just begun as a journalist at Barron’s. University of Chicago economist Gary Becker had just won the economics Nobel, partly in recognition of his insight that a family was like a firm. (But how much more intriguing to theorize that a firm is like a family?) Asking Rothbard what he thought of Becker’s win, I expected him to tell me that he thought applying economics to non-economic issues was foolish. Instead he began by saying that it was gratifying to see a free market-oriented economist like Becker gain such recognition. Then I asked, “But what do you think of the theory that a family is like a firm?” Rothbard answered, “I think it’s nuts!” And I was thus treated, first-hand, to that nasal voice going squeaky.

Introduction xiii

I had already become familiar with that nasal voice in the scores of audio-tapes I’d heard of Rothbard’s lectures, along with the salty insights tossed off with dazzling ease, punctuated by the signature giggle. To me, the joy in that giggle bespeaks an indefatigable spirit. In Rothard’s lectures on economic history, I caught him in a rare moment of hypocrisy. While he blasted the use of price indexes in his writings, he never hesitated to use a price index to prove a point about historical trends. He was of course quite right to criticize the pseudo-science of price indexes. But he might have acknowledged more explicitly that they sometimes come in handy as a rough approximation of price trends. To get a sense of the fun it must have been to be Murray Rothbard or to merely know him, try listening to one of his best lectures, “The Meaning of Ludwig von Mises.”4 We all know there could be no Murray Rothbard the great writer and thinker without his great teacher, Ludwig von Mises. Those who read and love Rothbard would be cheating themselves if they did not also read Mises’s many books. In my case, reading Mises’s magnum opus, Human Action, for the first time, I found his discussion of wages finally cemented my understanding of why wages inevitably rise in a free market with rising productivity—an insight that helped seal my conversion to libertarianism. It’s remarkable that Mises’s books read as well as they do, both in translation and in the English he began to write in at age 60. Rothbard had the advantage of being an extraordinary writer in the language he grew up in, as well as a devoted student of Mises. It was therefore left to him to render Mises’s great theories in clear, accessible prose, while often bringing those theories to a new level. So I think of Rothbard as having been Plato to Mises’s Socrates—an analogy I might push further if Rothbard were not so critical of Plato. Try his discussion of Aristotle’s refutation of Plato’s communism in Economic Thought Before Adam Smith, the first of his two books on the history of economic thought. Among all of Rothbard’s writings—the second volume is called Classical Economics— these two books are the ones I prefer to dip into again when I’m looking for something diverting to reread. 4

This lecture is available for download at the Mises Institute website.

xiv Economic Controversies The whole informed guided tour of the way people thought about economics is vastly entertaining. My favorite part is probably the devastating dissection of the supposed “father” of economics, Adam Smith. It’s tragic that Rothbard didn’t live to complete the third and final volume, which would have dealt with economic thought in the modern era. Which brings us to the tome you hold in your hand. It contains all of Rothbard’s best essays. If there is any single book worthy of being called a companion volume to Man, Economy, and State, this is it. You should start, as the book does, with the magisterial essay “The Mantle of Science,” in which Rothbard lays the groundwork on how to think about economics. After finishing this essay, you might reflect that all the writer has really done is make explicit a mode of thinking that comes naturally to us all. And just as I felt after I finished Man, Economy, and State, you might find it similarly empowering. Mainstream economics suffers from two main handicaps: (a) the desire to sound like a branch of physics, which feeds the elitist fantasies of those who aspire to be professional economists, and (b) the desire to sit at the tables of power à la John Maynard Keynes and Alan Greenspan, which spawns such top-down monstrosities as “macroeconomics.” Given these handicaps, it’s remarkable, as mentioned, that mainstream economists can still be insightful at times, especially in their journalism. I submit it’s because even they are still capable of using the mode of thinking Rothbard sets forth in “The Mantle of Science.” You might then jump, for comic relief, to “The Hermeneutical Invasion of Philosophy and Economics.” In that essay, Rothbard makes fun of the heavy thinkers who keep telling us, in effect, that words have no meaning. Of course, if they are right that words have no meaning, we can only respond that this key message of theirs is incomprehensible. For me the greatest eureka moment of all is when I first read Rothbard’s essay “The Austrian Theory of Money.” That was when I fully grasped Mises’s most beautiful insight, called the “regression theorem,” in which Mises was able to show that all money must have

Introduction xv

originated in some commodity (gold, seashells), that if you regress backward in time, you’ll find this had to have been the case. What people think of as government-created money (dollars, euros) is nothing of the kind, but came from those same commodities. For me, the beauty of the regression theorem lies in its power to infer historical fact from simple logic about human action. I did not read Rothbard’s 1972 essay “Heilbroner’s Economic Means and Social Ends” until years after it was first published. It’s a devastating critique of a book edited by New School economics Professor Robert Heilbroner, about the ideas of the abovementioned Adolph Lowe. Here, too, Plato comes up. “Professor Lowe’s political economics,” observes Rothbard, “is of a piece with an unfortunate penchant of intellectuals since the days of Plato: to impose their own arbitrary and static ‘order’ upon the rest of society, to freeze and annul change by their coercive fiat….” Had I read this essay when it first came out, it probably would have gotten me to read more of Rothbard, even if I hadn’t been lucky enough to find his economic treatise in the stacks. There are many “first books” on libertarianism in general and Austrian economics in particular. Which one is most suitable depends on the individual. For me, the way in was Man, Economy, and State, which had a great deal to do with me and my circumstances at the time. If my counterpart today finds that book and this one in the stacks, I would say that Economic Controversies is probably the better way in. Man, Economy, and State can come a bit later. Gene Epstein Economics Editor Barron’s New York September 2010

Section One

Method

1 The Mantle of Science

I

n our proper condemnation of scientism in the study of man, we should not make the mistake of dismissing science as well. For if we do so, we credit scientism too highly and accept at face value its claim to be the one and only scientific method. If scientism is, as we believe it to be, an improper method, then it cannot be truly scientific. Science, after all, means scientia, correct knowledge; it is older and wiser than the positivist-pragmatist attempt to monopolize the term. Scientism is the profoundly unscientific attempt to transfer uncritically the methodology of the physical sciences to the study of human action. Both fields of inquiry must, it is true, be studied by the use of reason—the mind’s identification of reality. But then it becomes crucially important, in reason, not to neglect the critical attribute of human action: that, alone in nature, human beings possess a rational consciousness. Stones, molecules, planets cannot choose their courses; their behavior is strictly and mechanically determined for them. Only human beings possess free will and consciousness: for they are conscious, and they can, and indeed must, choose their course of action.1 To ignore this primordial fact about the nature of man—to ignore his volition, his free will—is to misconstrue the facts of reality and therefore to be profoundly and radically unscientific.

Originally appeared as a chapter in Scientism and Values, Helmut Schoeck and James W. Wiggins, eds. (Princeton, N.J.: D. Van Nostrand, 1960). 1 Human action, therefore, does not occur apart from cause; human beings must choose at any given moment, although the contents of the choice are self-determined. 3

4

Economic Controversies

Man’s necessity to choose means that, at any given time, he is acting to bring about some end in the immediate or distant future, that is, that he has purposes. The steps that he takes to achieve his ends are his means. Man is born with no innate knowledge of what ends to choose or how to use which means to attain them. Having no inborn knowledge of how to survive and prosper, he must learn what ends and means to adopt, and he is liable to make errors along the way. But only his reasoning mind can show him his goals and how to attain them. We have already begun to build the first blocks of the many-storied edifice of the true sciences of man—and they are all grounded on the fact of man’s volition.2 On the formal fact that man uses means to attain ends we ground the science of praxeology, or economics; psychology is the study of how and why man chooses the contents of his ends; technology tells what concrete means will lead to various ends; and ethics employs all the data of the various sciences to guide man toward the ends he should seek to attain, and therefore, by imputation, toward his proper means. None of these disciplines can make any sense whatever on scientistic premises. If men are like stones, if they are not purposive beings and do not strive for ends, then there is no economics, no psychology, no ethics, no technology, no science of man whatever.

THE PROBLEM

OF

FREE WILL

Before proceeding further, we must pause to consider the validity of free will, for it is curious that the determinist dogma has so often been accepted as the uniquely scientific position. And while many philosophers have demonstrated the existence of free will, the concept has all too rarely been applied to the “social sciences.” In the first place, each human being knows universally from introspection that he chooses. The positivists and behaviorists may scoff at introspection all they wish, but it remains true that the introspective knowledge of a conscious man that he is conscious and acts 2

The sciences which deal with the functioning of man’s automatic organs—physiology, anatomy, and so on—may be included in the physical sciences, for they are not based on man’s will—although even here, psychosomatic medicine traces definite causal relations stemming from man’s choices.

Method 5

is a fact of reality. What, indeed, do the determinists have to offer to set against introspective fact? Only a poor and misleading analogy from the physical sciences. It is true that all mindless matter is determined and purposeless. But it is highly inappropriate, and moreover question-begging, simply and uncritically to apply the model of physics to man. Why, indeed, should we accept determinism in nature? The reason we say that things are determined is that every existing thing must have a specific existence. Having a specific existence, it must have certain definite, definable, delimitable attributes, that is, every thing must have a specific nature. Every being, then, can act or behave only in accordance with its nature, and any two beings can interact only in accord with their respective natures. Therefore, the actions of every being are caused by, determined by, its nature.3 But while most things have no consciousness and therefore pursue no goals, it is an essential attribute of man’s nature that he has consciousness, and therefore that his actions are self-determined by the choices his mind makes. At very best, the application of determinism to man is just an agenda for the future. After several centuries of arrogant proclamations, no determinist has come up with anything like a theory determining all of men’s actions. Surely the burden of proof must rest on the one advancing a theory, particularly when the theory contradicts man’s primary impressions. Surely we can, at the very least, tell the determinists to keep quiet until they can offer their determinations— including, of course, their advance determinations of each of our reactions to their determining theory. But there is far more that can be said. For determinism, as applied to man, is a self-contradictory

3

See Andrew G. Van Melsen, The Philosophy of Nature (Pittsburgh, Penn.: Duquesne University Press, 1953), pp. 208ff., 235ff. While free will must be upheld for man, determination must be equally upheld for physical nature. For a critique of the recent fallacious notion, based on the Heisenberg Uncertainty Principle, that atomic or sub-atomic particles have “free will,” see Ludwig von Mises, Theory and History (New Haven, Conn.: Yale University Press, 1957), pp. 87–92; and Albert H. Hobbs, Social Problems and Scientism (Harrisburg, Penn.: Stackpole, 1953), pp. 220–32.

6

Economic Controversies

thesis, since the man who employs it relies implicitly on the existence of free will. If we are determined in the ideas we accept, then X, the determinist, is determined to believe in determinism, while Y, the believer in free will, is also determined to believe in his own doctrine. Since man’s mind is, according to determinism, not free to think and come to conclusions about reality, it is absurd for X to try to convince Y or anyone else of the truth of determinism. In short, the determinist must rely, for the spread of his ideas, on the nondetermined, free-will choices of others, on their free will to adopt or reject ideas.4 In the same way, the various brands of determinists—behaviorists, positivists, Marxists, and so on—implicitly claim special exemption for themselves from their own determined systems.5 But if a man cannot affirm a proposition without employing its negation, he is not only caught in an inextricable self-contradiction; he is conceding to the negation the status of an axiom.6

4

Francis L. Harmon, Principles of Psychology (Milwaukee: Bruce Publishing, 1938), p. 487, and pp. 493–99. Even the controversial writings of the mechanists themselves appear to be intended for readers endowed with powers of choice. In other words, the determinist who would win others to his way of thinking must write as if he himself, and his readers at least, had freedom of choice, while all the rest of mankind are mechanistically determined in thought and in conduct. Also see Joseph D. Hassett, S.J., Robert A. Mitchell, S.J., and J. Donald Monan, S.J., The Philosophy of Human Knowing (Westminster, Maryland: Newman Press, 1953), pp. 72–73. 5 See Mises, Theory and History, pp. 258–60; and Mises, Human Action (New Haven, Conn.: Yale University Press, 1949), pp. 74ff. 6 Phillips therefore calls this attribute of an axiom a “boomerang principle . . . for even though we cast it away from us, it returns to us again,” and illustrates by showing that an attempt to deny the Aristotelian law of noncontradiction must end by assuming it. R.P. Phillips, Modern Thomistic Philosophy (Westminister, Maryland: Newman Bookshop, 1934–35), vol. 2, pp. 36–37. Also see John J. Toohey, S.J., Notes on Epistemology (Washington, D.C.: Georgetown University Press, 1952), passim, and Murray N. Rothbard, “In Defense of ‘Extreme Apriorism,’” Southern Economic Journal (January 1957): 318; reprinted in this volume as chapter 6.

Method

7

A corollary self-contradiction: the determinists profess to be able, some day, to determine what man’s choices and actions will be. But, on their own grounds, their own knowledge of this determining theory is itself determined. How then can they aspire to know all, if the extent of their own knowledge is itself determined, and therefore arbitrarily delimited? In fact, if our ideas are determined, then we have no way of freely revising our judgments and of learning truth— whether the truth of determinism or of anything else.7 Thus, the determinist, to advocate his doctrine, must place himself and his theory outside the allegedly universally determined realm, that is, he must employ free will. This reliance of determinism on its negation is an instance of a wider truth: that it is self-contradictory to use reason in any attempt to deny the validity of reason as a means of attaining knowledge. Such self-contradiction is implicit in such currently fashionable sentiments as “reason shows us that reason is weak,” or “the more we know, the more we know how little we know.”8 Some may object that man is not really free because he must obey natural laws. To say that man is not free because he is not able to do anything he may possibly desire, however, confuses freedom and power.9 It is clearly absurd to employ as a definition of “freedom”

7

In the course of a critique of determinism, Phillips wrote: “What purpose . . . could advice serve if we were unable to revise a judgment we had formed, and so act in a different way to which we at first intended?” Phillips, Modern Thomistic Philosophy, vol. 1, p. 282. For stress on free will as freedom to think, to employ reason, see Robert L. Humphrey, “Human Nature in American Thought,” Political Science Quarterly (June 1954): 269; Readings in Ethics, J.F. Leibell, ed. (Chicago: Loyola University Press, 1926), pp. 90, 103, 109; Robert Edward Brennan, O.P., Thomistic Psychology (New York: Macmillan, 1941), pp. 221–22; Van Melsen, The Philosophy of Nature, pp. 235–36; and Mises, Theory and History, pp. 177–79. 8 “A man involves himself in a contradiction when he uses the reasoning of the intellect to prove that that reasoning cannot be relied upon” (Toohey, Notes on Epistemology, p. 29). Also see Phillips, Modern Thomistic Philosophy, vol. 2, p. 16; and Frank Thilly, A History of Philosophy (New York: Henry Holt, 1914), p. 586. 9 See F.A. Hayek, The Road to Serfdom (Chicago: University of Chicago Press, 1944), p. 26.

8

Economic Controversies

the power of an entity to perform an impossible action, to violate its nature.10 Determinists often imply that a man’s ideas are necessarily determined by the ideas of others, of “society.” Yet A and B can hear the same idea propounded; A can adopt it as valid while B will not. Each man, therefore, has the free choice of adopting or not adopting an idea or value. It is true that many men may uncritically adopt the ideas of others; yet this process cannot regress infinitely. At some point in time, the idea originated, that is, the idea was not taken from others, but was arrived at by some mind independently and creatively. This is logically necessary for any given idea. “Society,” therefore, cannot dictate ideas. If someone grows up in a world where people generally believe that “all redheads are demons,” he is free, as he grows up, to rethink the problem and arrive at a different conclusion. If this were not true, ideas, once adopted, could never have been changed. We conclude, therefore, that true science decrees determinism for physical nature and free will for man, and for the same reason: that every thing must act in accordance with its specific nature. And since men are free to adopt ideas and to act upon them, it is never events or stimuli external to the mind that cause its ideas; rather the mind freely adopts ideas about external events. A savage, an infant, and a civilized man will each react in entirely different ways to the sight of the same stimulus—be it a fountain pen, an alarm clock, or a machine gun, for each mind has different ideas about the object’s meaning and qualities.11 Let us therefore never again say that the Great Depression of the 1930s caused men to adopt socialism or interventionism (or that poverty causes people to adopt Communism). The depression existed, and men were moved to think about this striking event; but that they adopted socialism or its equivalent as the way out was not determined by the event; they might just as well have chosen laissez-faire or Buddhism or any

10

John G. Vance, “Freedom,” quoted in Leibell, Readings in Ethics, pp. 98–100. Also see Van Melsen, The Philosophy of Nature, p. 236, and Michael Maher, “Psychology,” quoted in Leibell, Readings in Ethics. 11 Thus, cf., C.I. Lewis, Mind and the World Order (New York: Dover Publications, 1956), pp. 49–51.

Method 9

other attempted solution. The deciding factor was the idea that people chose to adopt. What led the people to adopt particular ideas? Here the historian may enumerate and weigh various factors, but he must always stop short at the ultimate freedom of the will. Thus, in any given matter, a person may freely decide either to think about a problem independently or to accept uncritically the ideas offered by others. Certainly, the bulk of the people, especially in abstract matters, choose to follow the ideas offered by the intellectuals. At the time of the Great Depression, there was a host of intellectuals offering the nostrum of statism or socialism as a cure for the depression, while very few suggested laissez-faire or absolute monarchy. The realization that ideas, freely adopted, determine social institutions, and not vice versa, illuminates many critical areas of the study of man. Rousseau and his host of modern followers, who hold that man is good, but corrupted by his institutions, must finally wither under the query: And who but men created these institutions? The tendency of many modern intellectuals to worship the primitive (also the childlike—especially the child “progressively” educated— the “natural” life of the noble savage of the South Seas, and so on) has perhaps the same roots. We are also told repeatedly that differences between largely isolated tribes and ethnic groups are “culturally determined”: tribe X being intelligent or peaceful because of its X-culture; tribe Y, dull or warlike because of Y-culture. If we fully realize that the men of each tribe created its own culture (unless we are to assume its creation by some mystic deus ex machina), we see that this popular “explanation” is no better than explaining the sleep-inducing properties of opium by its “dormitive power.” Indeed, it is worse, because it adds the error of social determinism. It will undoubtedly be charged that this discussion of free will and determinism is “one-sided” and that it leaves out the alleged fact that all of life is multicausal and interdependent. We must not forget, however, that the very goal of science is simpler explanations of wider phenomena. In this case, we are confronted with the fact that there can logically be only one ultimate sovereign over a man’s actions: either his own free will or some cause outside that will. There is no other alternative, there is no middle ground, and therefore the fashionable eclecticism of modern scholarship must in this case yield to the hard realities of the Law of the Excluded Middle.

10

Economic Controversies

If free will has been vindicated, how can we prove the existence of consciousness itself? The answer is simple: to prove means to make evident something not yet evident. Yet some propositions may be already evident to the self, that is, self-evident. A self-evident axiom, as we have indicated, will be a proposition which cannot be contradicted without employing the axiom itself in the attempt. And the existence of consciousness is not only evident to all of us through direct introspection, but is also a fundamental axiom, for the very act of doubting consciousness must itself be performed by a consciousness.12 Thus, the behaviorist who spurns consciousness for “objective” laboratory data must rely on the consciousness of his laboratory associates to report the data to him. The key to scientism is its denial of the existence of individual consciousness and will.13 This takes two main forms: applying mechanical analogies from the physical sciences to individual men, and applying organismic analogies to such fictional collective wholes as “society.” The latter course attributes consciousness and will, not to individuals, but to some collective organic whole of which the individual is merely a determined cell. Both methods are aspects of the rejection of individual consciousness.

THE FALSE MECHANICAL ANALOGIES

OF

SCIENTISM

The scientistic method in the study of man is almost wholly one of building on analogies from the physical sciences. Some of the common mechanistic analogies follow. Man as Servomechanism: Just as Bertrand Russell, one of the leaders of scientism, reverses reality by attributing determinism to men, and free will to physical particles, so it has recently become the fashion to say that modern machines “think,” while man is merely a complex form of machine, or “servomechanism.”14 What is overlooked 12

See Hassett, Mitchell, and Monan, The Philosophy of Human Knowing, pp. 33–35. Also see Phillips, Modern Thomistic Philosophy, vol. 1, pp. 50–51; Toohey, Notes on Epistemology, pp. 5, 36, 101, and 107–08; and Thilly, A History of Philosophy, p. 363. 13 Professor Strausz-Hupé also makes this point in his paper, “Social Science Versus the Obsession of Scientism,” in Schoeck and Wiggins, eds., Scientism and Values. 14 Mises, Theory and History, p. 92.

Method 11

here is that machines, no matter how complex, are simply devices made by man to serve man’s purposes and goals; their actions are preset by their creators, and the machines can never act in any other way or suddenly adopt new goals and act upon them. They cannot do so, finally, because the machines are not alive and are therefore certainly not conscious. If men are machines, on the other hand, then the determinists, in addition to meeting the above critique, must answer the question: Who created men and for what purpose?—a rather embarrassing question for materialists to answer.15 Social Engineering: This term implies that men are no different from stones or other physical objects, and therefore that they should be blueprinted and reshaped in the same way as objects by “social” engineers. When Rex Tugwell wrote in his famous poem during the flush days of the New Deal: I have gathered my tools and my charts, My plans are finished and practical. I shall roll up my sleeves—make America over,

one wonders whether his admiring readers thought themselves to be among the directing engineers or among the raw material that would be “made over.”16 Model-Building: Economics, and recently political science, have been beset by a plague of “model-building.”17 People do not construct

15

Ibid., pp. 94–95: A machine is a device made by man. It is the realization of a design and it runs precisely according to the plan of its authors. What produces the product of its operation is not something within it but the purpose the constructor wanted to realize by means of its construction. It is the constructor and operator who create and produce, not the machine. To ascribe to a machine any activity is anthropomorphism and animism. The machine . . . does not move; it is put into motion by men.

16

See ibid., pp. 249–50. On this and many other points in this paper I am greatly indebted to Professor Ludwig von Mises and to his development of the science of praxeology. See Ludwig von Mises, “Comment about the Mathematical Treatment of Economic Problems,” Studium Generale 4, no. 2 (1953); Mises, 17

12

Economic Controversies

theories any more; they “build” models of the society or economy. Yet no one seems to notice the peculiar inaptness of the concept. An engineering model is an exact replica, in miniature, that is, in exact quantitative proportion, of the relationships existing in the given structure in the real world; but the “models” of economic and political theory are simply a few equations and concepts which, at the very best, could only approximate a few of the numerous relations in the economy or society. Measurement: The Econometric Society’s original motto was “Science is measurement,” this ideal having been transferred intact from the natural sciences. The frantic and vain attempts to measure intensive psychic magnitudes in psychology and in economics would disappear if it were realized that the very concept of measurement implies the necessity for an objective extensive unit to serve as a measure. But the magnitudes in consciousness are necessarily intensive and therefore not capable of measurement.18 The Mathematical Method: Not only measurement but the use of mathematics in general in the social sciences and philosophy today, is an illegitimate transfer from physics. In the first place, a mathematical equation implies the existence of quantities that can be equated, which in turn implies a unit of measurement for these quantities. Second, mathematical relations are functional; that is, variables are interdependent, and identifying the causal variable depends on which is held as given and which is changed. This methodology is appropriate in physics, where entities do not themselves provide the causes for their actions, but instead are determined by discoverable quantitative laws of their nature and the nature of the interacting Human Action, passim; and Mises, Theory and History, pp. 240–63. The foundations of praxeology as a method were laid by the English classical economist, Nassau Senior. Unfortunately, the positivistic John Stuart Mill’s side of their methodological debate became much better known than Senior’s. See Marian Rowley, Nassau Senior and Classical Economics (New York: Augustus M. Kelley, 1949), chap. 1, esp. pp. 64–65. 18 For a critique of recent attempts to fashion a new theory of measurement for intensive magnitudes, see Murray N. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,” in On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises, Mary Sennholz, ed. (Princeton, N.J.: D. Van Nostrand, 1956), pp. 241–43; reprinted in this volume as chapter 17.

Method 13

entities. But in human action, the free-will choice of the human consciousness is the cause, and this cause generates certain effects. The mathematical concept of an interdetermining “function” is therefore inappropriate. Indeed, the very concept of “variable” used so frequently in econometrics is illegitimate, for physics is able to arrive at laws only by discovering constants. The concept of “variable” only makes sense if there are some things that are not variable, but constant. Yet in human action, free will precludes any quantitative constants (including constant units of measurement). All attempts to discover such constants (such as the strict quantity theory of money or the Keynesian “consumption function”) were inherently doomed to failure. Finally such staples of mathematical economics as the calculus are completely inappropriate for human action because they assume infinitely small continuity; while such concepts may legitimately describe the completely determined path of a physical particle, they are seriously misleading in describing the willed action of a human being. Such willed action can occur only in discrete, non-infinitelysmall steps, steps large enough to be perceivable by a human consciousness. Hence the continuity assumptions of calculus are inappropriate for the study of man. Other metaphors bodily and misleadingly transplanted from physics include: “equilibrium,” “elasticity,” “statics and dynamics,” “velocity of circulation,” and “friction.” “Equilibrium” in physics is a state in which an entity remains; but in economics or politics there is never really such an equilibrium state existing; there is but a tendency in that direction. Moreover, the term “equilibrium” has emotional connotations, and so it was only a brief step to the further mischief of holding up equilibrium as not only possible, but as the ideal by which to gauge all existing institutions. But since man, by his very nature, must keep acting, he cannot be in equilibrium while he lives, and therefore the ideal, being impossible, is also inappropriate. The concept of “friction” is used in a similar way. Some economists, for example, have assumed that men have “perfect knowledge,” that the factors of production have “perfect mobility,” and so on, and then have airily dismissed all difficulties in applying these absurdities to the real world as simple problems of “friction,” just as the physical sciences bring in friction to add to their “perfect”

14

Economic Controversies

framework. These assumptions in fact make omniscience the standard or ideal, and this cannot exist by the nature of man.

THE FALSE ORGANISMIC ANALOGIES

OF

SCIENTISM

The organismic analogies attribute consciousness, or other organic qualities, to “social wholes” which are really only labels for the interrelations of individuals.19 Just as in the mechanistic metaphors, individual men are subsumed and determined, here they become mindless cells in some sort of social organism. While few people today would assert flatly that “society is an organism,” most social theorists hold doctrines that imply this. Note, for example, such phrases as: “Society determines the values of its individual members”; or “The individual’s actions are determined by the role he plays in the group to which he belongs,” and so on. Such concepts as “the public good,” “the common good,” “social welfare,” and so on, are also endemic. All these concepts rest on the implicit premise that there exists, somewhere, a living organic entity known as “society,” “the group,” “the public,” “the community,” and that that entity has values and pursues ends. Not only are these terms held up as living entities; they are supposed to exist more fundamentally than mere individuals, and certainly “their” goals take precedence over individual ones. It is ironic that the self-proclaimed apostles of “science” should pursue the sheer mysticism of assuming the living reality of these concepts.20 Such concepts as “public good,” “general welfare,” and so on, should, therefore, be discarded as grossly unscientific, and the next time someone preaches the priority of “public good” over the individual good, we must ask: Who is the “public” in this case? We must remember that in the slogan justifying the public debt that rose to

19

On the fallacy of conceptual realism (or Platonic ultra-realism) involved here, and on the necessity for methodological individualism, see F.A. Hayek, The Counter-Revolution of Science (Glencoe, Ill.: The Free Press, 1952), passim, and Mises, Human Action, pp. 41ff. and 45. 20 We may therefore say with Frank Chodorov that “society are people.” Frank Chodorov, Society Are People (Philadelphia: Intercollegiate Society of Individualists, n.d.). For a critique of the mystique of “society,” see Mises, Theory and History, pp. 250ff.

Method 15

fame in the 1930s: “We owe it only to ourselves,” it makes a big difference for every man whether he is a member of the “we” or of the “ourselves.”21 A similar fallacy is committed, alike by friends and by foes of the market economy, when the market is called “impersonal.” Thus, people often complain that the market is too “impersonal” because it does not grant to them a greater share of worldly goods. It is overlooked that the “market” is not some sort of living entity making good or bad decisions, but is simply a label for individual persons and their voluntary interactions. If A thinks that the “impersonal market” is not paying him enough, he is really saying that individuals B, C, and D are not willing to pay him as much as he would like to receive. The “market” is individuals acting. Similarly, if B thinks that the “market” is not paying A enough, B is perfectly free to step in and supply the difference. He is not blocked in this effort by some monster named “market.” One example of the widespread use of the organismic fallacy is in discussions of international trade. Thus, during the gold-standard era, how often did the cry go up that “England” or “France” or some other country was in mortal danger because “it” was “losing gold? What was actually happening was that Englishmen or Frenchmen were voluntarily shipping gold overseas and thus threatening the banks in those countries with the necessity of meeting obligations (to pay in gold) which they could not possibly fulfill. But the use of the organismic metaphor converted a grave problem of banking into a vague national crisis for which every citizen was somehow responsible.22

21

See the delightful essay by Frank Chodorov, “We Lose It to Ourselves,” analysis (June 1950): 3. 22 A similar error of metaphor prevails in foreign policy matters. Thus: When one uses the simple monosyllabic “France” one thinks of France as a unit, an entity. When . . . we say “France sent her troops to conquer Tunis”—we impute not only unity but personality to the country. The very words conceal the facts and make international relations a glamorous drama in which personalized nations are the actors, and all too easily we forget the flesh-andblood men and women who are the true actors . . . if we had no such word as “France” . . . then we should more accurately

16

Economic Controversies

So far we have been discussing those organismic concepts which assume the existence of a fictive consciousness in some collective whole. There are also numerous examples of other misleading biological analogies in the study of man. We hear much, for example, of “young” and “old” nations, as if an American aged twenty is somehow “younger” than a Frenchman of the same age. We read of “mature economies,” as if an economy must grow rapidly and then become “mature.” The current fashion of an “economics of growth” presumes that every economy is somehow destined, like a living organism, to “grow” in some predetermined manner at a definite rate. (In the enthusiasm it is overlooked that too many economies “grow” backward.) That all of these analogies are attempts to negate individual will and consciousness has been pointed out by Mrs. Penrose. Referring to biological analogies as applied to business firms, she writes: where explicit biological analogies crop up in economics they are drawn exclusively from that aspect of biology which deals with the nonmotivated behavior of organisms. . . . So it is with the life-cycle analogy. We have no reason whatever for thinking that the growth pattern of a biological organism is willed by the organism itself. On the other hand, we have every reason for thinking that the growth of a firm is willed by those who make the decisions of the firm . . . and the proof of this lies in the fact that no one can describe the development of any given firm . . . except in terms of decisions taken by individual men.23

describe the Tunis expedition in some such way as this: “A few of . . . thirty-eight million persons sent thirty thousand others to conquer Tunis.” This way of putting the fact immediately suggests a question, or rather a series of questions. Who are the “few”? Why did they send the thirty thousand to Tunis? And why did these obey? Empire-building is done not by “nations,” but by men. The problem before us is to discover the men, the active, interested minorities in each nation, who are directly interested in imperialism and then to analyze the reasons why the majorities pay the expenses and fight the wars. (Parker Thomas Moon, Imperialism and World Politics [New York: Macmillan, 1930], p. 58) 23

Edith Tilton Penrose, “Biological Analogies in the Theory of the Firm,” American Economic Review (December 1952): 808.

Method 17

AXIOMS

AND

DEDUCTION

The fundamental axiom, then, for the study of man is the existence of individual consciousness, and we have seen the numerous ways in which scientism tries to reject or avoid this axiom. Not being omniscient, a man must learn; he must ever adopt ideas and act upon them, choosing ends and the means to attain these ends. Upon this simple fundamental axiom a vast deductive edifice can be constructed. Professor Mises has already done this for economics, which he has subsumed under the science of praxeology: this centers on the universal formal fact that all men use means for chosen ends, without investigating the processes of the concrete choices or the justification for them. Mises has shown that the entire structure of economic thought can be deduced from this axiom (with the help of a very few subsidiary axioms).24 Since the fundamental and other axioms are qualitative by nature, it follows that the propositions deduced by the laws of logic from these axioms are also qualitative. The laws of human action are therefore qualitative, and, in fact, it should be clear that free will precludes quantitative laws. Thus, we may set forth the absolute economic law that an increase in the supply of a good, given the demand, will lower its price; but if we attempted to prescribe with similar generality how much the price would fall, given a definite increase in supply, we would shatter against the free-will rock of varying valuations by different individuals. It goes without saying that the axiomatic-deductive method has been in disrepute in recent decades, in all disciplines but mathematics and formal logic—and even here the axioms are often supposed to be a mere convention rather than necessary truth. Few discussions of the history of philosophy or scientific method fail to make the ritual attacks on old-fashioned argumentation from self-evident principles. And yet the disciples of scientism themselves implicitly assume as self-evident not what cannot be contradicted, but simply that the methodology of physics is the only truly scientific methodology. This methodology, briefly, is to look at facts, then frame ever more general 24

In his Human Action. For a defense of this method, see chapter 6, this volume; and Rothbard, “Praxeology: Reply to Mr. Schuller,” American Economic Review (December 1951): 943–46; reprinted in this volume as chapter 7.

18

Economic Controversies

hypotheses to account for the facts, and then to test these hypotheses by experimentally verifying other deductions made from them. But this method is appropriate only in the physical sciences, where we begin by knowing external sense data and then proceed to our task of trying to find, as closely as we can, the causal laws of behavior of the entities we perceive. We have no way of knowing these laws directly; but fortunately we may verify them by performing controlled laboratory experiments to test propositions deduced from them. In these experiments we can vary one factor, while keeping all other relevant factors constant. Yet the process of accumulating knowledge in physics is always rather tenuous; and, as has happened, as we become more and more abstract, there is greater possibility that some other explanation will be devised which fits more of the observed facts and which may then replace the older theory. In the study of human action, on the other hand, the proper procedure is the reverse. Here we begin with the primary axioms; we know that men are the causal agents, that the ideas they adopt by free will govern their actions. We therefore begin by fully knowing the abstract axioms, and we may then build upon them by logical deduction, introducing a few subsidiary axioms to limit the range of the study to the concrete applications we care about. Furthermore, in human affairs, the existence of free will prevents us from conducting any controlled experiments; for people’s ideas and valuations are continually subject to change, and therefore nothing can be held constant. The proper theoretical methodology in human affairs, then, is the axiomatic-deductive method. The laws deduced by this method are more, not less, firmly grounded than the laws of physics; for since the ultimate causes are known directly as true, their consequents are also true. One of the reasons for the scientistic hatred of the axiomaticdeductive method is historical. Thus, Dr. E.C. Harwood, inveterate battler for the pragmatic method in economics and the social sciences, criticizes Mises as follows: Like the Greeks, Dr. Mises disparages change. “Praxeology is not concerned with the changing content of acting, but with its pure form and categorical structure.” No one who appreciates the long struggle of man toward more adequate knowing would criticize Aristotle for his adoption of a similar viewpoint 2,000 years ago, but, after all, that was 2,000 years ago; surely economists

Method 19 can do better than seek light on their subject from a beacon that was extinguished by the Galilean revolution in the 17th century.25

Apart from the usual pragmatist antagonism to the apodictic laws of logic, this quotation embodies a typical historiographical myth. The germ of truth in the historical picture of the noble Galileo versus the antiscientific Church consists largely in two important errors of Aristotle: (a) he thought of physical entities as acting teleologically, and thus in a sense as being causal agents; and (b) he necessarily had no knowledge of the experimental method, which had not yet been developed, and therefore thought that the axiomatic-deductive-qualitative method was the only one appropriate to the physical as well as the human sciences. When the seventeenth century enthroned quantitative laws and laboratory methods, the partially justified repudiation of Aristotle in physics was followed by the unfortunate expulsion of Aristotle and his methodology from the human sciences as well.26 This is true apart from historical findings that the Scholastics of the Middle Ages were the forerunners, rather than the obscurantist enemies, of experimental physical science.27

25

E.C. Harwood, Reconstruction of Economics (Great Barrington, Mass.: American Institute for Economic Research, 1955), p. 39. On this and other examples of scientism, see Leland B. Yeager, “Measurement as Scientific Method in Economics,” American Journal of Economics and Sociology (July 1957): 337. Also see Yeager, “Reply to Col. Harwood,” ibid. (October 1957): 104–06. As Yeager wisely concludes, “Anthropomorphism, rightly scorned in the natural sciences as prescientific metaphysics, is justified in economics because economics is about human action.” 26 Van Melsen, The Philosophy of Nature, pp. 54–58. 27 As Schumpeter declared: “The scholastic science of the Middle Ages contained all the germs of the laical science of the Renaissance.” The experimental method was used notably by Friar Roger Bacon and Peter of Maricourt in the thirteenth century; the heliocentric system of astronomy originated inside the Church (Cusanus was a cardinal and Copernicus a canonist); and the Benedictine monks led the way in developing medieval engineering. See Joseph A. Schumpeter, A History of Economic Analysis (New York: Oxford University Press, 1954), pp. 81ff.; and Lynn White, Jr., “Dynamo and Virgin Reconsidered,” The American Scholar (Spring, 1958): 183–212.

20

Economic Controversies

One example of concrete law deduced from our fundamental axiom is as follows: Since all action is determined by the choice of the actor, any particular act demonstrates a person’s preference for this action. From this it follows that if A and B voluntarily agree to make an exchange (whether the exchange be material or spiritual), both parties are doing so because they expect to benefit.28

SCIENCE

AND

VALUES: ARBITRARY ETHICS

Having discussed the properly scientific, as contrasted to the scientistic, approach to the study of man, we may conclude by briefly considering the age-old question of the relationship between science and values. Ever since Max Weber, the dominant position in the social sciences, at least de jure, has been Wertfreiheit: that science itself must not make value judgments, but confine itself to judgments of fact, since ultimate ends can be only sheer personal preference not subject to rational argument. The classical philosophical view that a rational (that is, in the broad sense of the term, a “scientific”) ethic is possible has been largely discarded. As a result, the critics of Wertfreiheit, having dismissed the possibility of rational ethics as a separate discipline, have taken to smuggling in arbitrary, ad hoc ethical judgments through the back door of each particular science of man. The current fashion is to preserve a façade of Wertfreiheit, while casually adopting value judgments, not as the scientist’s own decision, but as the consensus of the values of others. Instead of choosing his own ends and valuing accordingly, the scientist supposedly maintains his neutrality by adopting the values of the bulk of society. In short, to set forth one’s own values is now considered biased and “nonobjective,” while to adopt uncritically the slogans of other people is the height of “objectivity.” Scientific objectivity no longer means a man’s pursuit of truth wherever it may lead, but abiding by a Gallup poll of other, less informed subjectivities.29

28

For a refutation of the charge that this is a circular argument, see Rothbard, “Toward a Reconstruction of Utility and Welfare Economics.” 29 “When they [the practical scientists] remember their vows of objectivity, they get other people to make their judgments for them.” Anthony Standen, Science Is a Sacred Cow (New York: E.P. Dutton, 1958), p. 165.

Method 21

The attitude that value judgments are self-evidently correct because “the people” hold them permeates social science. The social scientist often claims that he is merely a technician, advising his clients—the public—how to attain their ends, whatever they may be. And he believes that thereby he can take a value position without really committing himself to any values of his own. An example from a recent public finance textbook (an area where the economic scientist must constantly confront ethical problems): The present-day justification for the ability principle (among economists) is simply the fact that . . . it is in accord with consensus of attitudes toward equity in the distribution of real income and of tax burden. Equity questions always involve value judgments, and tax structures can be evaluated, from an equity standpoint, only in terms of their relative conformity with the consensus of thought in the particular society with respect to equity.30

But the scientist cannot thereby escape making value judgments of his own. A man who knowingly advises a criminal gang on the best means of safe-cracking is thereby implicitly endorsing the end: safecracking. He is an accessory before the fact. An economist who advises the public on the most efficient method of obtaining economic equality is endorsing the end of economic equality. The economist who advises the Federal Reserve System how most expeditiously to manage the economy is thereby endorsing the existence of the system and its aim of stabilization. A political scientist who advises a government bureau on how to reorganize its staff for greater efficiency (or less inefficiency) is thereby endorsing the existence and the success of that bureau. To be convinced of this, consider what the proper course would be for an economist who opposes the existence of the Federal Reserve System, or the political scientist who would like to see the liquidation of the bureau. Wouldn’t he be betraying his principles if he helped what he is against to become more efficient? Wouldn’t his proper course either be to refuse to advise it, or perhaps to promote its inefficiency—on the grounds of the classical remark by a great American industrialist (speaking of government corruption): “Thank God that we don’t get as much government as we pay for”? 30

John F. Due, Government Finance (Homewood, Ill.: Richard D. Irwin, 1954), p. 122.

22

Economic Controversies

It should be realized that values do not become true or legitimate because many people hold them; and their popularity does not make them self-evident. Economics abounds in instances of arbitrary values smuggled into works the authors of which would never think of engaging in ethical analysis or propounding an ethical system. The virtue of equality, as we have indicated, is simply taken for granted without justification; and it is established, not by sense perception of reality or by showing that its negation is self-contradictory—the true criteria of self-evidence—but by assuming that anyone who disagrees is a knave and a rogue. Taxation is a realm where arbitrary values flourish, and we may illustrate by analyzing the most hallowed and surely the most commonsensical of all tax ethics: some of Adam Smith’s famous canons of “justice” in taxation.31 These canons have since been treated as self-evident gospel in practically every work on public finance. Take, for example, the canon that the costs of collection of any tax be kept to a minimum. Obvious enough to include in the most wertfrei treatise? Not at all—for we must not overlook the point of view of the tax collectors. They will favor high administrative costs of taxation, simply because high costs mean greater opportunities for bureaucratic employment. On what possible grounds can we call the bureaucrat “wrong” or “unjust”? Certainly no ethical system has been offered. Furthermore, if the tax itself is considered bad on other grounds, then the opponent of the tax may well favor high administrative costs on the ground that there will then be less chance for the tax to do damage by being fully collected. Consider another seemingly obvious Smith canon, namely, that a tax be levied so that payment is convenient. But again, this is by no means self-evident. Opponents of a tax, for example, may want the tax to be made purposely inconvenient so as to induce the people to rebel against the levy. Or another: that a tax be certain and not arbitrary, so that the taxpayers know what they will have to pay. But here again, further analysis raises many problems. For some may argue that uncertainty positively benefits the taxpayers, for it makes requirements more flexible, thus allowing more room for possible bribery of the tax collector. Another popular maxim is that a tax be

31

Adam Smith, The Wealth of Nations (New York: Modern Library, 1937), pp. 777–79.

Method 23

framed to make it difficult to evade. But again, if a tax is considered unjust, evasion might be highly beneficial, economically and morally. The purpose of these strictures has not been to defend high costs of tax collection, inconvenient taxes, bribery, or evasion, but to show that even the tritest bits of ethical judgments in economics are completely illegitimate. And they are illegitimate whether one believes in Wertfreiheit or in the possibility of a rational ethic: for such ad hoc ethical judgments violate the canons of either school. They are neither wertfrei nor are they supported by any systematic analysis.

CONCLUSION: INDIVIDUALISM

VS.

COLLECTIVISM

IN THE

STUDY

OF

MAN

Surveying the attributes of the proper science of man as against scientism, one finds a shining, clear theory separating one from the other. The true science of man bases itself upon the existence of individual human beings, upon individual life and consciousness. The scientistic brethren (dominant in modern times) range themselves always against the meaningful existence of individuals: the biologists deny the existence of life, the psychologists deny consciousness, the economists deny economics, and the political theorists deny political philosophy. What they affirm is the existence and primacy of social wholes: “society,” the “collective,” the “group,” the “nation.” The individual, they assert, must be value-free himself, but must take his values from “society.” The true science of man concentrates on the individual as of central, epistemological and ethical importance; the adherents of scientism, in contrast, lose no opportunity to denigrate the individual and submerge him in the importance of the collective. With such radically contrasting epistemologies, it is hardly sheer coincidence that the political views of the two opposing camps tend to be individualist and collectivist, respectively.

2 What is the Proper Way to Study Man?

I

f the proper study of mankind is man, the question immediately arises: what is the proper way to study man? In recent generations, the enormous prestige gained by physics in advancing our knowledge of the material world has led to the uncritical transfer of the methods appropriate in the natural sciences to the study of actions of men. These three books illuminate different aspects of the important truth that differences between the nature of human action and the behavior of unmotivated physical objects require different methodologies of scientific study. The science of economics has always had a separate methodology of its own; but, as in almost all successful sciences, it did not begin to examine and analyze its methodology until it had developed the bulk of its laws and principles. However, if a well-analyzed methodology is not established in time, a science is in danger of falling into gross error by wandering down plausible but invalid paths. In an age when many widely divergent and even contradictory paths of inquiry are open to economists, it is more important than ever that economic science develop a more critical awareness of its proper methodology. Ludwig von Mises’s Grundprobleme der Nationalökonomie, published in 1933, was a monumental achievement in

Originally appear in the September 15, 1961 issue of The National Book Foundation. A review of Ludwig von Mises’s, Epistemological Problems of Economics (Princeton, N.J.: D. Van Nostrand, 1960); Essays in European Economic Thought, Louise Sommer, ed. (Princeton, N.J.: D. Van Nostrand, 1960); and Richard von Mises, Probability, Statistics, and Truth, 2nd revised English edition, prepared by Hilda Geiringer (New York: Macmillan, 1957). 25

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Economic Controversies

the study of economic methodology. While previous work by Senior, Cairnes, and Menger had vindicated the validity of economic theory, Mises’s volume was the first to rid the methodology of economics of all traces of positivism and relativism. For the first time, Mises explained fully why the laws of human action (economics and, more widely, “praxeology”) cannot be “tested” by reference to statistical or historical “data.” In the behavior of physical objects, science begins by empirical observation of constant relations, and then frames tentative hypotheses of explanatory laws, these hypotheses being always subject to testing and revision by referring their deduced consequents to controlled experiments, where all but the relevant, isolated factors are held constant. This is the “scientific method” of physics. But in the study of human action, as Mises shows, the reverse is true; here, we begin by knowing the causal laws: by knowing the fact of human consciousness, of free will, of motivated, purposeful action of human beings in using given means for the attainment of desired ends. On the other hand, the facts of human history are not, as in physics, controllable and subject to testing; they are the complex and changing resultants of the interplay of human motives and actions, impinging on the natural environment and on each other. The laws of economic science, therefore, can only be constructed by starting with apodictically known axioms and deducing from them a body of necessarily true laws. The best-known modern work on economic methodology in the English-speaking world has been Lionel Robbins’s An Essay on the Nature and Significance of Economic Science, published at about the same time as Grundprobleme. But Mises’s book is a far more profound and basic work in the same general tradition, and its present translation as Epistemological Problems of Economics therefore fills a vital gap by bringing us the outstanding work on the methodology of economics. Essays in European Economic Thought brings to the American reader translations of seven important European economic essays of the past century. Perhaps the outstanding article in the collection is the brilliant critique of mathematical economics by Paul Painlevé, an eminent French mathematician who wrote the essay as the introduction to the French translation of W. Stanley Jevons’s Theory of Political Economy in 1909. Jevons’s work was one of the first, and one of the least harmful, of the increasingly frequent incursions into economics

Method 27

of the mathematical method; and yet, in his critique of Jevons, Painlevé already saw the dangers and fallacies. The Austrian, praxeological tradition has always recognized that mathematics, and quantitative methods generally, are appropriate to the physical sciences where behavior is continuous and unmotivated; but that verbal logic, in contrast, is the appropriate method where one is studying the necessarily discrete, motivated, qualitative actions of men. In a field where mathematical economists are too often inclined to dismiss critics as ignorant of mathematics, the arguments of this distinguished mathematician carry particular weight. Richard von Mises’s great classic, Probability, Statistics, and Truth, effected a revolution in the nature of probability theory during the 1920s and 1930s. “Classical” probability theory considered numerical probability to be derived from “equal ignorance” about the potential events being considered: thus, the probability of obtaining a “threespot” upon the throw of a die was considered to be “one-sixth” because there are six possibilities and we do not know if one possibility is stronger than another. Mises (the brother of Ludwig von Mises), demonstrating the contradictions of this approach, insisted that the probability is not one-sixth if the die happens to be “loaded,” and that the only way to find out if a die is loaded is by tossing it a large number of times. Thus was born the “frequency theory” of numerical probability, based on knowledge and not on ignorance. The frequency theory implies that to say the probability of a die showing “three” is “one-sixth” means that, if a die is thrown a great many times, the number of occasions on which “three” is obtained will approach one out of every six throws. But this means, that numerical and mathematical probability theory cannot really apply to each single case, but only to the proportion of randomly-selected homogeneous events as tossing a coin or throwing a die. This fact is much more true of the unique, non-random events of ordinary human (and entrepreneurial) action. It becomes evident from Richard von Mises’s fundamental work that mathematical probability theory can never be applicable to economics, or to any other study of human action. At the present time, when mathematical probability theory is very heavily used in economics and sociology, the translation of the third German edition of Mises’s work is particularly welcome. For Mises here refutes various modern criticisms of his theory and

28

Economic Controversies

demolishes the attempts of such philosophers as Carnap and Reichenbach to establish a mathematical theory for individual cases, as contrasted to large homogeneous classes, of human actions.

3 Praxeology as the Method of the Social Sciences

D

THE PRAXEOLOGICAL METHOD

uring the past generation, a veritable revolution has taken place in the discipline of economics. I am referring not so much to the well-known Keynesian revolution, but to the quieter yet more profound revolution in the methodology of the discipline. This change has not occurred simply in the formal writings of the handful of conscious methodologists; it has spread, largely unnoticed, until it now permeates research and study in all parts of the field. Some effects of this methodological revolution are all too apparent. Let the nonspecialist in economics pick up a journal article or monograph today and contrast it with one of a generation ago, and the first thing that will strike him is the incomprehensibility of the modern product. The older work was written in ordinary language and, with moderate effort, was comprehensible to the layman; the current work is virtually all mathematics, algebraic or geometric. As one distinguished economist lamented, “Economics nowadays often seems like a third-rate sub-branch of mathematics,” and one, he added, that the mathematician himself does not esteem very highly. Of course, economics shares this accelerated mathematization with virtually every other field of knowledge, including history and literature. But, laboring under the common notion that it is a science with a special focus on quantities, economics has proceeded farther

Originally appeared in Phenomenology and the Social Sciences, Maurice Natanson, ed. (Evanston, Ind.: Northwestern University Press, 1973), vol. 2, pp. 31–61. 29

30

Economic Controversies

and faster than any of its sister disciplines down the mathematical and statistical road. The emphasis on mathematics is a symptom of a deeper change in the discipline: the rapid adoption of what we may broadly call “positivism” as the guide for research and the criterion for the successful construction of economic theory. The growing influence of positivism has its source in the attempt of all social sciences to mimic the (allegedly) supremely successful science, physics. For social scientists, as for almost all intellectuals, physics has unfortunately all but replaced philosophy as the “queen of the sciences.” In the hands of the positivists, philosophy has almost come to be an elaborate running commentary on and explication of physics, too often serving as the handmaiden of that prestigious science. What positivists see as the methodology of physics has been elevated, at their hands, to be the scientific method, and any deviant approach has been barred from the status of science because it does not meet the rigorous positivist test. At the risk of oversimplification, the positivist model of the scientific method may be summarized as follows: Step 1. The scientist observes empirical regularities, or “laws,” between variables. Step 2. Hypothetical explanatory generalizations are constructed, from which the empirically observed laws can be deduced and thus “explained.” Step 3. Since competing hypotheses can be framed, each explaining the body of empirical laws, such “coherence” or consistent explanation is not enough; to validate the hypotheses, other deductions must be made from them, which must be “testable” by empirical observation. Step 4. From the construction and testing of hypotheses, a wider and wider body of generalizations is developed; these can be discarded if empirical tests invalidate them, or be replaced by new explanations covering a still wider range of phenomena. Since the number of variables is virtually infinite, the testing in Step 3, as well as much of the observation in Step 1, can only be done in “controlled experiments,” in which all variables but the ones under study are held constant. Replicating the experimental conditions should then replicate the results.

Method 31

Note that in this methodology we proceed from that which is known with certainty—the empirical regularities—up through ever wider and more tentative hypotheses. It is this fact that leads the layman to believe erroneously that Newton “overthrew” his predecessors and was in his turn “overthrown” by Einstein. In fact, what happens is not so much substitution as the addition of more general explanations for a wider range of phenomena; the generalizations of a Newton or an Einstein are far more tentative than the fact that two molecules of hydrogen combine with one molecule of oxygen to produce water. Now, I am not expert enough in the philosophy of science to challenge this positivist model of the methodology of physics, although my reading in the philosophy of nature leads me to suspect that it is highly inadequate.1 My contention is rather that the wholesale and uncritical application of this model to economics in recent decades has led the entire discipline badly astray. There is, however, unbeknownst to most present-day economists, a competing methodological tradition. This tradition, the method of most of the older classical economists, has been called “praxeology” by Ludwig von Mises, its most eminent modern theorist and practitioner. Praxeology holds that in the social sciences where human beings and human choices are involved, Step 3 is impossible, since even in the most ambitious totalitarian society, it is impossible to hold all the variables constant. There cannot be controlled experiments when we confront the real world of human activity. Let us take a recent example of a generally unwelcome economic phenomenon: the accelerated price inflation in the United States in the last few years. There are all manner of competing theoretical explanations for this, ranging from increases in the money supply to a sudden increase in greed on the part of the public or various segments thereof. There is no positivist empirical way of deciding between these various theories; there is no way of confirming or disproving them by keeping all but one supposedly explanatory variable constant, and then changing that variable to see what happens to prices. In addition, there is the well-known social science analogue

1

On this, see Andrew G. Van Melsen, The Philosophy of Nature (Pittsburgh, Penn.: Duquesne University Press, 1953).

32

Economic Controversies

of the Heisenberg uncertainty principle: positivist science contains predictions, but how can predictions be tested when the very act of prediction itself changes the forces at work? Thus, economist A predicts a severe recession in six months; acting on this, the government takes measures to combat the supposedly imminent recession, the public and the stock market react, and so on. The recession then never takes place. Does that mean that the economist was basing his prediction on erroneous theories, or that the theories were correct but inappropriate to the actual data, or that he was “really” right but that prompt action forestalled the dreaded event? There is no way to decide. One further example: Keynesian economists hold that depressions can be cured by massive doses of deficit spending by the government. The United States government engaged in large-scale deficit-spending to combat the depression in the late l930s, but to no avail. The anti-Keynesians charge that this failure proves the incorrectness of Keynesian theory; the Keynesians reply that the doses were simply not massive enough, and that far greater deficits would have turned the tide. Again, there is no positivist-empirical way to decide between these competing claims. Praxeologists share the contention of the impossibility of empirical testing with other critics of positivism, such as the institutionalists, who for this reason abandon economic theory altogether and confine themselves to purely empirical or institutional economic reportage. But the praxeologist does not despair; he turns instead to another methodology that can yield a correct body of economic theory. This methodology begins with the conviction that while the economist, unlike the physicist, cannot test his hypotheses in controlled experiments, he is, in another sense, in a better position than the physicist. For while the physicist is certain of his empirical laws but tentative and uncertain of his explanatory generalizations, the economist is in the opposite position. He begins, not with detailed, quantitative, empirical regularities, but with broad explanatory generalizations. These fundamental premises he knows with certainty; they have the status of apodictic axioms, on which he can build deductively with confidence. Beginning with the certain knowledge of the basic explanatory axiom A, he deduces the implications of A: B, C, and D. From these he deduces further implications, and so on. If he knows that A is true, and if A implies B, C, and D, then he

Method 33

knows with certainty that B, C, and D are true as well. The positivist, looking through the blinders imposed by his notion of physics, finds it impossible to understand how a science can possibly begin with the explanatory axioms and work downward to the more concrete empirical laws. He therefore dismisses the praxeological approach as “mythical” and “apriorist.” What are these axioms with which the economist can so confidently begin? They are the existence, the nature, and the implications of human action. Individual human beings exist. Moreover, they do not simply “move,” as do unmotivated atoms or molecules; they act, that is, they have goals and they make choices of means to attain their goals. They order their values or ends in a hierarchy according to whether they attribute greater or lesser importance to them; and they have what they believe is technological knowledge to achieve their goals. All of this action must also take place through time and in a certain space. It is on this basic and evident axiom of human action that the entire structure of praxeological economic theory is built. We do not know, and may never know with certainty, the ultimate equation that will explain all electromagnetic and gravitational phenomena; but we do know that people act to achieve goals. And this knowledge is enough to elaborate the body of economic theory.2 There is considerable controversy over the empirical status of the praxeological axiom. Professor Mises, working within a Kantian philosophical framework, maintained that like the “laws of thought,” the axiom is a priori to human experience and hence apodictically certain. This analysis has given rise to the designation of praxeology as “extreme apriorism.” Most praxeologists, however, hold that the axiom is based squarely in empirical reality, which makes it no less certain than it is in Mises’s formulation. If the axiom is empirically

2

Thus the fact that people act to achieve their goals implies that there is a scarcity of means to attain them; otherwise the goals would already have been attained. Scarcity implies costs, which in a monetary system (developed much later in the logical elaboration) are reflected in prices, and so forth. For a consciously praxeological development of economic theory, see Ludwig von Mises, Human Action (New Haven, Conn.: Yale University Press, 1949); and Murray N. Rothbard, Man, Economy, and State, 2nd ed. (Kansas City: Sheed Andrews and McMeel, 1970).

34

Economic Controversies

true, then the logical consequences built upon it must be empirically true as well. But this is not the sort of empiricism welcomed by the positivists, for it is based on universal reflective or inner experience, as well as on external physical experience. Thus, the knowledge that human beings have goals and act purposively to attain them rests, not simply on observing that human beings exist, but also on the introspective knowledge of what it means to be human possessed by each man, who then assents to this knowledge. While this sort of empiricism rests on broad knowledge of human action, it is also prior to the complex historical events that economists attempt to explain. Alfred Schütz pointed out and elaborated the complexity of the interaction between the individual and other persons, the “interpretive understanding” or Verstehen, upon which this universal, prescientific understanding rests. The common-sense knowledge of the universality of motivated, intentional human action, ignored by positivists as “unscientific,” actually provides the indispensable groundwork on which science itself must develop.3 For Schütz this knowledge is empirical, “provided that we do not restrict this term to sensory perceptions of objects and events in the outer world but include the experimental form, by which common-sense thinking in everyday life understands human actions and their outcome in terms of their underlying motives and goals.”4

3

4

It is . . . not understandable that the same authors who are convinced that no verification is possible for the intelligence of other human beings have such confidence in the principle of verifiability itself, which can be realized only through cooperation with others by mutual control. (Alfred Schütz, Collected Papers, vol. 2: Studies in Social Theory, A. Brodersen, ed. [The Hague: Nijhoff, 1964], p. 4)

Alfred Schütz, Collected Papers, vol. 1: The Problem of Social Reality, Maurice Natanson, ed. (The Hague: Nijhoff, 1962), p. 65; see also pp. 1–66, as well as Peter Winch, “Philosophical Bearings,” in Philosophy of the Social Sciences: A Reader, Maurice Natanson, ed. (New York: Random House, 1963). On the importance of the commonsense, prescientific presuppositions of science from a slightly different philosophical perspective, see Van Melsen, Philosophy of Nature, pp. 6–29.

Method 35

The nature of the evidence on which the praxeological axiom rests is, moreover, fundamentally similar to that accepted by the self-proclaimed empiricists. To them, the laboratory experiment is evidence because the sensory experience involved in it is available to each observer; the experience becomes “evident” to all. Logical proof is in this sense similar; for the knowledge that B follows from A becomes evident to all who care to follow the demonstration. In the same way, the fact of human action and of purposive choice also becomes evident to each person who bothers to contemplate it; it is just as evident as the direct sense experience of the laboratory. From this philosophical perspective, then, all disciplines dealing with human beings—from philosophy to history, psychology, and the social sciences—must take as their starting point the fact that humans engage in motivated, purposive action and are thus different from the unmotivated atoms and stones that are the objects of the physical sciences. But where, then, does praxeology or economics differ from the other disciplines that treat human beings? The difference is that, to the praxeologist, economic theory (as distinct from applied economics, which will be treated below) deals, not with the content of human valuations, motivations, and choices, but with the formal fact that people engage in such motivated action. Other disciplines focus on the content of these values and actions. Thus, psychology asks how and why people adopt values and make choices; ethics deals with the problem of what values and choices they should adopt; technology explains how they should act in order to arrive at chosen ends; and history tries to explain the content of human motives and choices through recorded time. Of these disciplines, history is perhaps the most purely verstehende, for the historian is constantly attempting to describe, understand, and explain the motivations and choices of individual actors. Economic theory, on the other hand, is the least verstehende, for while it too begins with the axiom of purposive and intentional human action, the remainder of its elaborated structure consists of the deduced logical—and therefore true—implications of that primordial fact. An example of the formal structure of economic theory is the well-known economic law, built up from the axiom of the existence of motivated human action, that if the demand for any product increases, given the existing supply, the price of that product will rise. This law holds regardless of the ethical or aesthetic status of the

36

Economic Controversies

product, just as the law of gravity applies to objects regardless of their particular identity. The economic theorist is not interested in the content of what is being demanded, or in its ethical meaning—it may be guns or butter or even textbooks on philosophy. It is this universal, formal nature of economic law that has earned it among laymen the reputation of being cold, heartless, and excessively logical. Having discussed the nature of the axiom on which the praxeological view of economics is grounded, we may now turn to examine the deductive process itself, the way in which the structure of economic laws is developed, the nature of those laws, and, finally, the ways in which the praxeological economist applies these economic laws to the social world. One of the basic tools for the deduction of the logical implications of the axiom of human action is the use of the Gedankenexperiment, or “mental experiment.” The Gedankenexperiment is the economic theorist’s substitute for the natural scientist’s controlled laboratory experiment. Since the relevant variables of the social world cannot actually be held constant, the economist holds them constant in his imagination. Using the tool of verbal logic, he mentally investigates the causal influence of one variable on another. The economist finds, for example, that the price of a product is determined by two variables, the demand for it and its supply at any given time. He then mentally holds the supply constant, and finds that an increase in demand—brought about by higher rankings of the product on the value scales of the public—will bring about an increase in price. Similarly, he finds, again using verbal deductive logic, that if these value scales, and therefore public demand, are mentally held constant, and the supply of the product increases, its price will fall. In short, economics arrives at ceteris paribus laws: Given the supply, the price will change in the same direction as demand; given the demand, price will change in the opposite direction from supply. One important aspect of these economic laws must be pointed out: they are necessarily qualitative. The fact that human beings have goals and preferences, that they make choices to attain their goals, that all action must take place over time, all these are qualitative axioms. And since only the qualitative enters into the logical process from the real world, only the qualitative can emerge. One can only say, for example, that an increase in demand, given the supply, will raise the price; one cannot say that a 20 percent increase in demand

Method 37

will bring about a 25 percent increase in price. The praxeologist must reject all attempts, no matter how fashionable, to erect a theory consisting of alleged quantitative laws. In an age that tries desperately to imitate prestigious physics, with its emphasis on mathematics and its quantitative laws, many social scientists, including many economists, have ignored the praxeological method because of this very insistence on the qualitative bounds of the discipline. There is a basic reason for the quantitative—qualitative dichotomy between the physical and the social sciences. The objects of physical science do not act; they do not choose, change their minds, and choose again. Their natures may therefore be investigated, and the investigations replicated indefinitely, with quantitative precision. But people do change their minds, and their actions, all the time; their behavior cannot be predicted with exact and therefore scientific precision. Among the many factors helping to determine the demand and the supply of butter, for example, are the valuations placed by each consumer on butter relative to all other products available, the availability of substitutes, the climate in the butter-producing areas, technological methods of producing butter (and margarine), the price of cattle feed, the supply of money in the country, the existence of prosperity or recession in the economy, and the public’s expectations of the trend of general prices. Every one of these factors is subject to continuing and unpredictable change. Even if one mammoth equation could be discovered to “explain” all recorded prices of butter for the past 50 years, there is no guarantee, and not even the likelihood, that the equation would have anything to do with next month’s price. In fact, if empirical success is the test, it is surely noteworthy that all the determined efforts of quantitative economists, econometricians, and social scientists have not been able to find one single quantitative constant in human affairs. The mathematical laws in the physical sciences contain numerous constants; but the imitative method in the social sciences is proven vain by the fact that not a single constant has ever emerged. Moreover, despite the use of sophisticated econometric models and high-speed computers, the success rate of forecasting economic quantities has been dismal, even for the simplest of aggregates such as Gross National Product, let alone for more difficult quantities; the record of GNP forecasting by economists has been poorer than a simple layman’s extrapolation of

38

Economic Controversies

recent trends.5 In fact, the federal government has had notably poor success even in forecasting the one variable under its own absolute control—its own expenditure in the near future. Perhaps we will revise our critical opinion of econometric science if and when the econometricians prove themselves able to make flawless predictions of activity on the stock market—and make themselves vast fortunes in the process. Except for the fact that they are not quantitative, however, the predictions of the praxeologist are precisely the same kind as those of the natural scientist. The latter, after all, is not a prophet or soothsayer; his successful prediction is not what will happen in the world, but what would happen if such and such should occur. The scientist can predict successfully that if hydrogen and oxygen are combined in proportions of two to one, the result will be water; but he has no way of predicting scientifically how many scientists in how many laboratories will perform this process at any given period in the future. In the same way, the praxeologist can say, with absolute certainty, that if the demand for butter increases, and the supply remains the same, the price of butter will rise; but he does not know whether the public’s demand for butter will in fact rise or fall, let alone by how much it will change. Like the physical scientist, the economist is not a prophet, and it is unfortunate that the econometricians and quantitative economists should have so eagerly assumed this social role.6 5

See Victor Zamowitz, An Appraisal of Short-Term Economic Forecasts (New York: National Bureau of Economic Research, 1967). For a record of the problems of forecasting see “Bad Year for Econometrics,” Business Week (December 20, 1969): 36–40. 6 The English economist Peter T. Bauer properly distinguishes between scientific prediction and forecasting: Prediction, in the sense of the assessment of the results of specified occurrences or conditions, must be distinguished from the forecasting of future events. Even if the prediction that the producers of a particular crop respond to a higher price by producing more is correct, this prediction does not enable us to forecast accurately next year’s output (still less the harvest in the more distant future), which in the event will be affected by many factors besides changes in price. (Peter T. Bauer, Economic Analysis and Policy in Underdeveloped Countries [Durham, N.C.: Duke University Press, 1957], pp. 10–11; see also pp. 28–32)

Method 39

The English economist John Jewkes suggests the properly limited role for economic forecasting, as well as for applied economics generally: I submit that economists cannot, without stepping outside their discipline, predict in the sense of telling us what will happen in the future. . . . In the most general sense, there is, indeed, no such thing as the economic future. There is only the future in which economic factors are bound together, inextricably and quite without hope of separate identification, with the whole universe of forces determining the course of events. . . . Anyone who proposes to look at it [the future] before the event must take as his province the whole of experience and knowledge. He must cease to behave as a specialist, which means that he must cease to behave as an economist. . . . The economist’s claim to predictive authority must be false in that it leads to a palpable absurdity. If the economic future can, indeed, be described, why not also the scientific future, the political future, the social future, the future in each and every sense? Why should we not be able to plumb all the mysteries of future time?7

What, then, is the praxeological view of the function of applied economics? The praxeologist contrasts, on the one hand, the body of qualitative, nomothetic laws developed by economic theory, and on the other, a myriad of unique, complex historical facts of both the past and the future. It is ironic that while the praxeologist is generally denounced by the positivist as an “extreme apriorist,” he actually has a far more empirical attitude toward the facts of history. For the positivist is always attempting to compress complex historical facts into artificial molds, regarding them as homogeneous and therefore manipulable and predictable by mechanical, statistical, and quantitative operations in the attempt to find leads, lags, correlations, econometric relations, and “laws of history.” This Procrustean distortion is undertaken in the belief that the events of human history can be treated in the same mechanistic way as the movements of atoms or molecules—

7

John Jewkes, “The Economist and Economic Change,” in Economics and Public Policy (Washington, D.C.: Brookings Institution, 1955), pp. 82–83.

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Economic Controversies

simple, unmotivated, homogeneous elements. The positivist thereby ignores the fact that while atoms and stones have no history, man, by virtue of his acts of conscious choice, creates a history. The praxeologist, in contrast, holds that each historical event is the highly complex result of a large number of causal forces, and, further, that it is unique and cannot be considered homogeneous to any other event. Obviously, there are similarities between events, but there is no perfect homogeneity and therefore no room for historical “laws” similar to the exact laws of physical science. While accepting that there are no mechanical laws of history, however, the praxeologist holds that he can and must use his knowledge of other nomothetic sciences as part of his verstehende attempt to understand and explain the idiographic events of history. Let us suppose that the economic historian, or the student of applied economics, is attempting to explain a rapid rise in the price of wheat in a certain country during a certain period. He may bring many nomothetic sciences to bear: agronomy and entomology may help reveal that an insect mentioned in the historical record was responsible for a drastic fall in wheat production; meteorological records may show that rainfall was insufficient; he may discover that during the periods people’s taste for bread increased, perhaps imitating a similar preference by the king; he may discover that the money supply was increasing, and learn from economic theory that an increase in the supply of money tends to raise prices in general, including therefore the price of wheat. And, finally, economic theory states that the price of wheat moves inversely with the supply and directly with the demand. The economic historian combines all of his scientific knowledge with his understanding of motives and choices to attempt to explain the complex historical phenomenon of the price of bread. A similar procedure is followed in the study of such infinitely more complex historical problems as the causes of the French Revolution, where, again, the historian must blend his knowledge of causal theories in economics, military strategy, psychology, technology, and so on, with his understanding of the motives and choices of individual actors. While historians may well agree on the enumeration of all the relevant causal factors in the problem, they will differ on the weight to be attached to each factor. The evaluation of the relative importance of historical factors is an art, not a science, a matter of personal judgment, experience, and verstehende insight

Method 41

which will differ from one historian to another. In this sense, economic historians, like economists (and indeed other historians), can come to qualitative but not quantitative agreement. For the praxeologist, forecasting is a task very similar to the work of the historian. The latter attempts to “predict” the events of the past by explaining their antecedent causes; similarly, the forecaster attempts to predict the events of the future on the basis of present and past events already known. He uses all his nomothetic knowledge, economic, political, military, psychological, and technological; but at best his work is an art rather than an exact science. Thus, some forecasters will inevitably be better than others, and the superior forecasters will make the more successful entrepreneurs, speculators, generals, and bettors on elections or football games. The economic forecaster, as Professor Jewkes pointed out, is only looking at part of a tangled and complex social whole. To return to our original example, when he attempts to forecast the price of butter he must take into consideration the qualitative economic law that price depends directly on demand and inversely on supply; it is then up to him, using knowledge and insight into general economic conditions as well as the specific economic, technological, political, and climatological conditions of the butter market, as well as the values people are likely to place on butter, to try to forecast the movements of the supply and demand of butter, and therefore its price, as accurately as possible. At best, he will have nothing like a perfect score, for he will run aground on the fact of free will altering values and choices, and the consequent impossibility of making exact predictions of the future.8

8

We may mention here the well-known refutation of the notion of predicting the future by Karl Popper, namely, that in order to predict the future, we would have to predict what knowledge we will possess in the future. But we cannot do so, for if we knew what our future knowledge would be, we would already be in possession of that knowledge at the present time. See Karl R. Popper, The Poverty of Historicism (New York: Harper and Row, 1964), pp. vi–viii.

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Economic Controversies

THE PRAXEOLOGICAL TRADITION The praxeological tradition has a long history in economic thought. We will indicate briefly the outstanding figures in the development of that tradition, especially since these economic methodologists and their views have been recently neglected by economists steeped in the positivist world view. One of the first self-conscious methodologists in the history of economics was the early-nineteenth-century French economist JeanBaptiste Say. In the lengthy introduction to his magnum opus, A Treatise on Political Economy, Say laments that people are too apt to suppose that absolute truth is confined to the mathematics and to the results of careful observation and experiment in the physical sciences; imagining that the moral and political sciences contain no invariable facts of indisputable truth, and therefore cannot be considered as genuine sciences, but merely hypothetical systems.

Say could easily have been referring to the positivists of our day, whose methodology prevents them from recognizing that absolute truths can be arrived at in the social sciences, when grounded, as they are in praxeology, on broadly evident axioms. Say insists that the “general facts” underlying what he calls the “moral sciences” are undisputed and grounded on universal observation. Hence the advantage enjoyed by every one who, from distinct and accurate observation, can establish the existence of these general facts, demonstrate their connection, and deduce their consequences. They as certainly proceed from the nature of things as the laws of the material world. We do not imagine them; they are results disclosed to us by judicious observation and analysis.. . . That can be admitted by every reflecting mind.

These general facts, according to Say, are “principles,” and the science of political economy, in the same manner as the exact sciences, is composed of a few fundamental principles, and of a great number of corollaries or conclusions drawn from these principles. It is essential, therefore, for the advancement of this science that these principles should be strictly deduced from observation; the number of conclusions to be drawn from them may afterwards be either

Method 43 multiplied or diminished at the discretion of the inquirer, according to the object he proposes.9

Here Say has set forth another important point of the praxeological method: that the paths in which the economist works out the implications of the axioms and the elaborated system which results will be decided by his own interests and by the kind of historical facts he is examining. Thus, it is theoretically possible to deduce the theory of money even in an economy of primitive barter, where no money exists; but it is doubtful whether a primitive praxeologist would have bothered to do so. Interestingly enough, Say at that early date saw the rise of the statistical and mathematical methods, and rebutted them from what can be described as a praxeological point of view. The difference between political economy and statistics is precisely the difference between political economy (or economic theory) and history. The former is based with certainty on universally observed and acknowledged general principles; therefore, “a perfect knowledge of the principles of political economy may be obtained, inasmuch as all the general facts which compose this science may be discovered.” Upon these “undeniable general facts,” “rigorous deductions” are built, and to that extent political economy “rests upon an immovable foundation.” Statistics, on the other hand, only records the ever changing pattern of particular facts, statistics “like history, being a recital of facts, more or less uncertain and necessarily incomplete.” Furthermore, Say anticipated the praxeologist’s view of historical and statistical data as themselves complex facts needing to be explained. “The study of statistics may gratify curiosity, but it can never be productive of advantage when it does not indicate the origin and consequences of the facts it has collected; and by indicating their origin and consequences, it at once becomes the science of political economy.” Elsewhere in the essay, Say scoffs at the gullibility of the public toward statistics: “Sometimes, moreover, a display of figures and calculations imposes upon them; as if numerical calculations alone could prove anything, and as if any rule could be laid down, from

9

Jean-Baptiste Say, A Treatise on Political Economy, C.C. Biddle, trans. (New York: Augustus M. Kelley, 1964), pp. xxiv, xxv, xlv, xxvi.

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which an inference could be drawn without the aid of sound reasoning.”10 Say goes on to question sharply the value of mathematics in the construction of economic theory, once again referring back to the structure of the basic axioms, or general principles, for his argument. For political economy is concerned with men’s values, and these values being “subject to the influence of the faculties, the wants and the desires of mankind, they are not susceptible of any rigorous appreciation, and cannot therefore furnish any data for absolute calculations. In political science, all that is essential is a knowledge of the connection between causes and their consequences.” Delving deeper into the then only embryonic use of the mathematical method of economics, Say points out that the laws of economics are strictly qualitative: “We may, for example, know that for any given year the price of wine will infallibly depend upon the quantity to be sold, compared with the extent of the demand.” But “if we are desirous of submitting these two data to mathematical calculation,” then it becomes impossible to arrive at precise quantitative forecasts of the innumerable, ever changing forces at work: the climate, the quantity of the harvest, the quality of the product, the stock of wine held over from the previous vintage, the amount of capital, the possibilities of export, the supply of substitute beverages, and the changeable tastes and values of the consumers.”11 Say offers a highly perceptive insight into the nature and probable consequences of the application of mathematics to economics. He argues that the mathematical method, with its seeming exactitude, can only gravely distort the analysis of qualitative human action by stretching and oversimplifying the legitimate insights of economic principles: Such persons as have pretended to do it, have not been able to enunciate these questions into analytical language, without divesting them of their natural complication, by means of simplifications, and arbitrary suppressions, of which the consequences, not properly estimated, always essentially change the condition of the problem, and pervert all its results; so that no other inference can be

10 11

lbid., pp. xix–xx, li. lbid., pp. xxvi, xxvin.

Method 45 deduced from such calculations than from formula arbitrarily assumed.12

In contrast to the physical sciences where the explanatory laws or general principles are always in the realm of the hypothetical, in praxeology it is fatal to introduce oversimplification and falsehood into the premises, for then the conclusions deduced from them will be irredeemably faulty as well.13 If mathematics and statistics do not provide the proper method for the political economist, what method is appropriate? The same course that he would pursue in his daily life. “He will examine the immediate elements of the proposed problem, and after having ascertained them with certainty . . . will approximately value their mutual influences with the intuitive quickness of an enlightened understanding.”14 In short, the laws of the political economist are certain, but their blending and application to any given historical event is accomplished, not by pseudo-quantitative or mathematical methods, which distort and oversimplify, but only by the use of Verstehen, “the intuitive quickness of an enlightened understanding.” The first economists to devote their attention specifically to methodology were three leading economists of mid-nineteenth century Britain: John E. Cairnes, Nassau W. Senior, and John Stuart Mill. Cairnes and Senior, at least, may be considered as proto-praxe-

12

lbid., p. xxvin. One of the most pernicious aspects of the current dominance of positivist methodology in economics has been precisely this injection of false premises into economic theory. The leading extreme positivist in economics, Milton Friedman, goes so far as to extol the use of admittedly false premises in the theory, since, according to Friedman, the only test of a theory is whether it predicts successfully. See Milton Friedman “The Methodology of Positive Economics,” in Essays in Positive Economics (Chicago: University of Chicago Press, 1953), pp. 3–46. Of the numerous critiques and discussions of the Friedman thesis, see in particular Eugene Rotwein, “On The Methodology of Positive Economics,” Quarterly Journal of Economics 73 (November 1959): 554–75; Paul A. Samuelson, “Discussion,” American Economic Review: Papers and Proceedings 53 (May 1963): 231–36; Jack Maltz, “Friedman and Machlup on the Significance of Testing Economic Assumptions,” Journal of Political Economy 73 (February 1965): 37–60. 14 Say, Treatise on Political Economy, p. xxvin. 13

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Economic Controversies

ologists. Cairnes, after agreeing with Mill that there can be no controlled experiments in the social sciences, adds that they have, however, a crucial advantage over the physical sciences. For, in the latter, mankind have no direct knowledge of ultimate physical principles. The law of gravitation and the laws of motion are among the best established and most certain of such principles; but what is the evidence on which they rest? We do not find them in our consciousness, by reflecting on what passes in our minds; nor can they be made apparent to our sense the proof of all such laws ultimately resolving itself into this, that, assuming them to exist, they account for the phenomena.

In contrast, however, The economist starts with a knowledge of ultimate causes. He is already, at the outset of his enterprise, in the position which the physicist only attains after ages of laborious research. If any one doubt this, he has only to consider what the ultimate principles governing economic phenomena are . . . certain mental feelings and certain animal propensities in human beings; [and] the physical conditions under which production takes place. . . . For the discovery of such premises no elaborate process of induction is needed . . . for this reason, that we have, or may have if we choose to turn our attention to the subject, direct knowledge of these causes in our consciousness of what passes in our own minds, and in the information which our senses convey . . . to us of external facts. Every one who embarks in any industrial pursuit is conscious of the motives which actuate him in doing so. He knows that he does so from a desire, for whatever purpose, to possess himself of wealth; he knows that, according to his lights, he will proceed toward his end in the shortest way open to him.15

15

J.E. Cairnes, The Character and Logical Method of Political Economy, 2nd ed. (London: Macmillan, [1857] 1875, repr. 1888), pp. 83, 87–88 (italics in the original). The emphasis of Cairnes and other classical economists on wealth as the goal of economic action has been modified by later praxeological economists to include all manner of psychological satisfactions, of which those stemming from material wealth are only a subset. A discussion similar to that of Cairnes can be found in F.A. Hayek, “The Nature and History of the Problem,” in Collectivist Economic Planning, F.A. Hayek, ed. (London: Routledge, 1935), pp. 10–1l.

Method 47

Cairnes goes on to point out that the economist uses the mental experiment as a replacement for the laboratory experiment of the physical scientist. Cairnes demonstrates that deduced economic laws are “tendency,” or “if-then,” laws, and, moreover, that they are necessarily qualitative, and cannot admit of mathematical or quantitative expression. Thus, he too makes the point that it is impossible to determine precisely how much the price of wheat will rise in response to a drop in supply; for one thing, “it is evident that the disposition of people to sacrifice one kind of gratification to another—to sacrifice vanity to comfort, or decency to hunger—is not susceptible of precise measurement.”16 In the preface to his second edition, two decades later in 1875, Cairnes reiterated his opposition to the growing application of the mathematical method to economics, which, in contrast to its use in the physical sciences, cannot produce new truths; “and unless it can be shown either that mental feelings admit of being expressed in precise quantitative forms, or, on the other hand, that economic phenomena do not depend upon mental feelings, I am unable to see how this conclusion can be avoided.”17 Cairnes’s older contemporary, Nassau Senior, was the most important praxeologist of that era. Before Senior, classical economists such as John Stuart Mill had placed the fundamental premises of economics on the shaky ground of being hypotheses; the major hypothesis was that all men act to obtain the maximum of material wealth. Since this is clearly not always true, Mill had to concede that economics was only a hypothetical and approximate science. Senior broadened the fundamental premise to include immaterial wealth or satisfaction, a complete, apodictic, and universally true principle based on insight into the goal-seeking nature of human action. In stating that every man desires to obtain additional wealth with as little sacrifice as possible, we must not be supposed to mean that everybody . . . wishes for an indefinite quantity of everything . . . What we mean to state is that no person feels his whole wants to be adequately supplied; that every person has some unsatisfied desires which he believes that additional wealth would gratify. The

16 17

Cairnes, Character and Logical Method, p. 127. Ibid., p. v.

48

Economic Controversies nature and urgency of each individual’s wants are as various as the differences in individual character.18

In contrast to the physical sciences, Senior pointed out, economics and the other “mental sciences” draw their premises from the universal facts of human consciousness: The physical sciences, being only secondarily conversant with mind, draw their premises almost exclusively from observation or hypothesis. Those which treat only of magnitude or number, . . . the pure sciences, draw them altogether from hypothesis. . . . They disregard almost entirely the phenomenon of consciousness. . . . On the other hand, the mental sciences and the mental arts thaw their premises principally from consciousness. The subjects with which they are chiefly conversant are the workings of the human mind.19

These latter premises are “a very few general propositions, which are the result of observation, or consciousness, and which almost every man, as soon as he hears them, admits, as familiar to his thought, or at least, as included in his previous knowledge.”20 During the 1870s and 1880s, classical economics was supplanted by the Neoclassical School. In this period the praxeological method was carried on and further developed by the Austrian School, founded by Carl Menger of the University of Vienna and continued by his two most eminent disciples, Eugen von Böhm-Bawerk and Friedrich von Wieser. It was on the basis of their work that BöhmBawerk’s student Ludwig von Mises later founded praxeology as a self-conscious and articulated methodology.21 As it was outside the

18

Nassau William Senior, An Outline of the Science of Political Economy (New York: Augustus M. Kelley, [1836] n.d.), p. 27. 19 Marian Rowley, Nassau Senior and Classical Economics (New York: Augustus M. Kelley, 1949), p. 56. 20 Ibid., p. 43. See also p. 64, where Rowley points out the similarity between Senior’s methodological views and the praxeology of Ludwig von Mises. 21 The outstanding example is Mises, Human Action. See also his Theory and History (New Haven, Conn.: Yale University Press, 1957); The Ultimate Foundation of Economic Science (Kansas City: Sheed Andrews and McMeel, 1978); and Epistemological Problems of Economics (Princeton, N.J.:

Method 49

increasingly popular intellectual fashion of positivism and mathematics, however, the Austrian School has been greatly neglected in recent years and dismissed as an unsound approximation of the positivist-mathematical theory of the Lausanne School, founded by Léon Walras of Lausanne and continued by the Italian economist and sociologist Vilfredo Pareto. A few followers or sympathetic observers, however, have carried on investigations into the methodology of the early Austrian School. Leland B. Yeager notes what we now see as the typically praxeological view of the unique advantage of economic theory over the physical sciences: “While the basic elements of theoretical interpretation in the natural sciences, such, he [Menger] says, as forces and atoms, cannot be observed directly, the elements of explanation in economics—human individuals and their strivings—are of a direct empirical nature.” Furthermore, “The facts that economists induce from the behavior of themselves and other people serve as axioms from which a useful body of economic theory can be logically deduced, much as in geometry an impressive body of theorems can be deduced from a few axioms.” In short, “Menger conceived of economic theory as a body of deductions from basic principles having a strong empirical foundation.” Referring to the dominant positivist economists of our own day, Yeager adds perceptively, Not sharing . . . Menger’s understanding of how empirical content gets into so-called “armchair theory,” many economists of our own day apparently regard theoretical and empirical work as two distinct fields. Manipulation of arbitrarily-assumed functional relationships is justified in the minds of such economists by the idea that empirical testing of theories against the real world comes afterward.22

D. Van Nostrand, 1960). See also F.A. Hayek, The Counter-Revolution of Science (Glencoe, Ill.: The Free Press, 1955); Lionel Robbins, An Essay on the Nature and Significance of Economic Science, 2nd ed. (London: Macmillan, 1949); and Israel M. Kirzner, The Economic Point of View, 2nd ed. (Kansas City: Sheed Andrews and McMeel, 1976). 22 Leland B. Yeager, “The Methodology of Henry George and Carl Menger,” American Journal of Economics and Sociology 13 (April 1954): 235, 238.

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Economic Controversies

Other writers have discovered links between the Austrian method and various strands of the philosophia perennis. Thus, Emil Kauder finds a close relationship between this method and Aristotelian philosophy, which was still influential in Austria at the end of the nineteenth century. Kauder points out that all the Austrians were “social ontologists,” and that as such they believed in a structure of reality “both as a logical starting point and as a criterion of validity.” He notes Mises’s statement that economic laws are “ontological facts,” and he characterizes as both ontological and Aristotelian the concern of Menger and his followers to uncover the “essences” of phenomena, rather than to treat superficial and complex economic quantities. Kauder also points out that for Menger and the Austrians, economic theory deals with types and typical relations, which provide knowledge that transcends the immediate, concrete case and is valid for all times and places. Concrete historical cases are thus the Aristotelian “matter” which contains potentialities, while the laws and types are the Aristotelian “forms” which actualize the potential. For the Austrians, and especially for BöhmBawerk, furthermore, causality and teleology were identical. In contrast to the functional-mutual determination approach of Walras and of contemporary economists, the Austrians traced the causes of economic phenomena back to the wants and choices of consumers. Wieser especially stressed the grounding of economic theory on the inner experience of the mind.23 Furthermore, Ludwig M. Lachmann, in contrasting the Austrian and Lausanne Schools, shows that the Austrians were endeavoring to construct a “verstehende social science,” the same ideal that Max Weber was later to uphold. Lachmann points out that the older Ricardian economists adopted the “objective” method of the natural sciences insofar as their major focus was upon the quantitative problem of income distribution. In their analysis, factors of production (land, labor, and capital goods) react mechanically to external economic changes. But, in contrast, “Austrian theory is ‘subjective’ also in the sense that individuals . . . perform acts and lend the imprint of their individuality to the events on the market.” As for the contrast between Austria and Lausanne 23

Emil Kauder, “Intellectual and Political Roots of the Older Austrian School,” Zeitschrift fur Nationalökonomie 17, no. 4 (1958): 411–25.

Method 51 it is the contrast between those [Lausanne] who confine themselves to determining the appropriate magnitudes of the elements of a system (the conditions of equilibrium) and those [the Austrians] who try to explain events in terms of the mental acts of the individuals who fashion them. Most Austrian thinkers were dimly aware of this contrast, but before Hans Mayer, Mises and Hayek were unable to express it concisely. The validity of the Lausanne model is limited to a stationary world. The background of the Austrian theory, by contrast, is a world of continuous change in which plans have to be conceived and continually revised.24

We may conclude this sketch of the history of the praxeological tradition in economics by treating an important but much neglected debate on economic methodology which occurred at the turn of the twentieth century between Pareto and the philosopher Benedetto Croce. Croce, from his own highly developed praxeological position, opened the debate by chiding Pareto for having written that economic theory was a species of mechanics. Vigorously rejecting this view, Croce points out that a fact in mechanics is a mere fact, which requires no positive or negative comment; whereas words of approval or disapproval can appropriately be applied to an economic fact. The reason is that the true data of economics are not “physical things and objects, but actions. The physical object is merely the brute matter of an economic act.”25 Economic data, then, are acts of man, and these acts are the results of conscious choice. 24

English abstract of Ludwig M. Lachmann, “Die geistesgeschichtliche Bedeutung der österreichischen Schule in der Volkswirtschaftslehre,” Zeitschrift für Nationalökonomie 26, nos. 1–3 (1966): 152–67, in Journal of Economic Abstracts 5 (September 1967): 553–54. See also Lachmann, “Methodological Individualism and the Market Economy,” in Roads to Freedom: Essays in Honor of Friedrich A. von Hayek, E. Streissler, ed. (New York: Augustus M. Kelley, 1969), pp. 89–103; and Israel M. Kirzner, “Methodological Individualism, Market Equilibrium, and Market Process,” Il Politico 32, no. 4 (December 1967): 787–99. 25 Benedetto Croce, “On the Economic Principle: I” (1990), International Economic Papers 3 (1953): 173, 195. On Croce’s views on economics, see Giorgio Tagliacozzo, “Croce and the Nature of Economic Science,” Quarterly Journal of Economics 59 (May 1945): 307–29. On the CrocePareto debate, see Kirzner, Economic Point of View, pp. 155–57. It is of interest that the Walrasian economist Joseph Schumpeter, in his only untranslated work, Das Wesen und der Hauptinhalt der theoretischen

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In his lengthy reply, Pareto reiterates the similarity between economics and mechanics, and, like the positivists of today, defends unrealistic mechanistic assumptions as simple abstractions from reality, in the supposed manner of the natural sciences. Professing, in a typical positivist gambit, not to “understand” the concept of value, Pareto writes: “I see . . . that you employ the term value. . . . I no longer use it as I do not know what it would convey to other people.” The concept of value is vague and complex and not subject to measurement; therefore, “the equations of pure economics establish relations between quantities of things, hence objective relations, and not relations between more or less precise concepts of our minds.”26 Criticizing Croce’s evident concentration on the essences of economic action, as exemplified in his insistence that “one ought to study not the things which are the result of actions but the actions themselves,” Pareto complains that this method is an ancient scientific fallacy. “The ancients conjured up cosmogonies instead of studying astronomy, wondered about the principles of the elements water and fire . . . instead of studying chemistry. Ancient science wanted to proceed from the origin to the facts. Modern science starts from the facts and proceeds towards the origin at an extremely slow pace.” Typically, Pareto sets forth the objectivist, positivist position by arguing from the analogy of the method of the natural sciences, thus completely begging the question of whether the methodologies of the natural and the social sciences should or should not be similar. Thus he concludes that “science proceeds by replacing the relationships between human concepts (which relationships are the first to occur to us) by relationships between things.”27 Croce replies by criticizing Pareto’s restriction of economics to measurable quantities as arbitrary; for what of those economic

Nationalökonomie (Leipzig: Duncker and Humblot, 1908), specifically declared that the economist must only treat changes in “economic quantities” as if they were caused automatically, without reference to the human beings who may have been involved in such changes. In that way, causality and purpose would be replaced in economic theory by functional, mathematical relationships. See Kirzner, Economic Point of View, pp. 68–70. 26 Vilfredo Pareto, “On the Economic Phenomenon” (1900), International Economic Papers 3(1953): 187. 27 Ibid., pp. 190, 196.

Method 53

situations where the objects of action or exchange are not measurable? Croce suggests that it is Pareto who is really being metaphysical, while Croce is the true empiricist. For “your implied metaphysical postulate is . . . this: that the facts of man’s activity are of the same nature as physical facts; that in the one case as in the other we can only observe regularity and deduce consequences therefrom, without ever penetrating into the inner nature of the facts. . . . How would you defend this postulate of yours except by a metaphysical monism?” In contrast, writes Croce, “I hold to experience. This testifies to me of the fundamental distinction between external and internal, between physical and mental, between mechanics and teleology, between passivity and activity.” As for value, it is really a simple term wrapped up in human activity: “Value is observed immediately in ourselves, in our consciousness.”28 In his rejoinder, Pareto begins with a typical example of metaphysical obtuseness: He does not believe that “the facts of man’s activity are of the same nature as physical facts” because he doesn’t know what “nature” may be. He goes on to reiterate various examples from physical science to demonstrate the proper methodology for all disciplines. He wishes to follow the “masters of positive science” rather than mere philosophers. Pareto concludes with a concise summation of the differences between the two men and the two methodologies: We experimentalists . . . accept hypotheses not for any intrinsic value they may have but only in so far as they yield deductions which are in harmony with the facts. You, considering the nature of things independently from the rest, establish a certain proposition A, and from it come down to the concrete facts B. We may accept proposition A, but only as a hypothesis, therefore making not the slightest attempt to prove it. . . . Then we see what can be deduced from it. If those deductions agree with the facts we accept the hypothesis, for the time being of course, because we hold nothing as final or absolute.29

28

Croce, “On the Economic Principle II” (1901), International Economic Papers 3 (1953): 198–99. 29 Pareto, “On the Economic Principle” (1901), International Economic Papers 3 (1953): 206.

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METHODOLOGICAL INDIVIDUALISM Only an individual has a mind; only an individual can feel, see, sense, and perceive; only an individual can adopt values or make choices; only an individual can act. This primordial principle of “methodological individualism,” central to Max Weber’s social thought, must underlie praxeology as well as the other sciences of human action. It implies that such collective concepts as groups, nations, and states do not actually exist or act; they are only metaphorical constructs for describing the similar or concerted actions of individuals. There are, in short, no “governments” as such; there are only individuals acting in concert in a “governmental” manner. Max Weber puts it clearly: These collectivities must be treated as solely the resultants and modes of organization of the particular acts of individual persons, since these alone can be treated as agents in a course of subjectively understandable action. . . . For sociological purposes . . . there is no such thing as a collective personality which “acts.” When reference is made in a sociological context to . . . collectivities, what is meant is . . . only a certain kind of development of actual or possible social actions of the individual persons.30

Ludwig von Mises points out that what differentiates purely individual action from that of individuals acting as members of a collective is the different meaning attached by the people involved. It is the meaning which the acting individuals and all those who are touched by their action attribute to an action, that determines its character. It is the meaning that marks one action as the action of the state or of the municipality. The hangman, not the state, executes a criminal. It is the meaning of those concerned that discerns in the hangman’s action an action of the state. A group of armed

30

Max Weber, The Theory of Social and Economic Organization (Glencoe, Ill.: The Free Press, 1957), quoted in Alfred Schütz, The Phenomenology of the Social World (Evanston, Ill.: Northwestern University Press, 1967), p. 199. For an application of methodological individualism to foreign policy, see Parker T. Moon, Imperialism and World Politics (New York: Macmillan, 1930), p. 58. For a more general political application, see Frank Chodorov, “Society Are People,” in The Rise and Fall of Society (New York: DevinAdair, 1959), pp. 29–37.

Method 55 men occupies a place. It is the meaning of those concerned which imputes this occupation not to the officers and soldiers on the spot, but to their nation.31

In his important methodological work, Mises’s disciple F.A. Hayek has demonstrated that the fallacy of treating collective constructs as directly perceived “social wholes” (“capitalism,” “the nation,” “the class”) about which laws can be discovered stems from the objectivist-behaviorist insistence on treating men from the outside, as if they were stones, rather than attempting to understand their subjectively determined actions. It [the objectivist view] treats social phenomena not as something of which the human mind is a part and the principles of whose organization we can construct from the familiar parts, but as if they were objects directly perceived by us as wholes. . . . There is the rather vague idea that since “social phenomena” are to be the object of study, the obvious procedure is to start from the direct observation of these “social phenomena,” where the existence in popular usage of such terms as “society” or “economy” is naively taken as evidence that there must be definite “objects” corresponding to them.32

Hayek adds that emphasis on the meaning of the individual act brings out that, “what of social complexes is directly known to us are only the parts and that the whole is never directly perceived but always reconstructed by an effort of our imagination.”33 Alfred Schütz, the outstanding developer of the phenomenological method in the social sciences, has reminded us of the importance of going back “to the ‘forgotten man’ of the social sciences, to the actor in the social world whose doing and feeling lies at the bottom of the whole system. We, then, try to understand him in that doing and feeling and the state of mind which induced him to adopt specific attitudes towards his social environment.” Schütz adds that “for a theory of action the subjective point of view must be retained in its fullest strength, in default of which such a theory loses its basic foundations, namely its reference to the social world of everyday life and 31

Mises, Human Action, p. 42. Hayek, Counter-Revolution of Science, pp. 53–54. 33 Ibid., p. 214. 32

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experience.” Lacking such a foundation, social science is likely to replace the “world of social reality” by a fictional nonexisting world constructed by the scientific observer. Or, as Schütz puts it succinctly: “I cannot understand a social thing without reducing it to human activity which has created it, and beyond it, without referring this human activity to the motives out of which it springs.”34 Arnold W. Green has recently demonstrated how the use of invalid collective concepts has damaged the discipline of sociology. He notes the increasing use of “society” as an entity which thinks, feels, and acts, and, in recent years, has functioned as the perpetrator of all social ills. “Society,” for example, and not the criminal, is often held to be responsible for all crime. In many quarters “society” is considered almost demonic, a “reified villain” which “may be attacked at will, blamed at random, derided and mocked with selfrighteous fury, [and] may even be overturned by fiat or utopian yearning—and somehow, in some way, buses will still run on time.” Green adds that “if on the other hand, society is viewed as people whose insecure social relationships are preserved only by the fealty paid their common store of moral rules, then the area of free choice available in which with impunity to demand, undermine, and wreck, is sharply restricted.” Moreover, if we realize that “society” does not itself exist, but is made up only of individual people, then to say that “society is responsible for crime, and criminals are not responsible for crime, is to say that only those members of society who do not commit crime can be held responsible for crime. Nonsense this obvious can be circumvented only by conjuring up society as devil, as evil being apart from people and what they do.”35 Economics has been rife with fallacies that arise when collective social metaphors are treated as if they were existent objects. Thus, during the era of the gold standard there was occasionally great alarm that “England” or “France” was in mortal danger because “it” was losing gold. What actually happened was that Englishmen and Frenchmen were voluntarily shipping gold overseas and thus threatening the people who ran the banks of those countries with the 34

Schütz, Collected Papers, vol. 2, pp. 7, 8, 10. Arnold W. Green, “The Reified Villain,” Social Research 35 (Winter, 1968): 656, 664. On the concept of “society,” see also Mises, Theory and History, pp. 250ff. 35

Method 57

necessity of meeting obligations to pay in gold which they could not possibly fulfill. But the use of the collective metaphor converted a grave problem of banking into a vague national crisis for which every citizen was somehow responsible. Similarly, during the 1930s and l940s many economists proclaimed that in contrast to debts owed overseas, the size of the domestic public debt was unimportant because “we only owe it to ourselves.” The implication was that the collective national person owed “himself” money from one pocket to another. This explanation obscured the fact that it makes a substantial difference for every person whether he is a member of the “we” or the “ourselves.” Sometimes the collective concept is treated unabashedly as a biological organism. Thus, the popular concept of economic growth implies that every economy is somehow destined, in the manner of a living organism, to “grow” in some predetermined manner. The use of such analogical terms is an attempt to overlook or even negate individual will and consciousness in social and economic affairs. As Edith Penrose has written in a critique of the use of the “growth” concept in the study of business firms: Where explicit biological analogies crop up in economics they are drawn exclusively from that aspect of biology which deals with the unmotivated behavior of organisms . . . have no reason whatever for thinking that the growth pattern of a biological organism is willed by the organism itself. On the other hand, we have every reason for thinking that the growth of a firm is willed by those who make the decisions of the firm . . . and the proof of this lies in the fact that no one can describe the development of any given firm . . . except in terms of decisions taken by individual men.36

There is no better summary of the nature of praxeology and the role of economic theory in relation to concrete historical events than in Alfred Schütz’s discussion of the economic methodology of Ludwig von Mises: No economic act is conceivable without some reference to an economic actor, but the latter is absolutely anonymous; it is not you,

36

Edith Tilton Penrose, “Biological Analogies in the Theory of the Firm,” American Economic Review (December 1952): 808.

58

Economic Controversies nor I, nor an entrepreneur, nor even an “economic man” as such, but a pure universal “one.” This is the reason why the propositions of theoretical economics have just that “universal validity” which gives them the ideality of the “and so forth” and “I can do it again.” However, one can study the economic actor as such and try to find out what is going on in his mind; of course, one is not then engaged in theoretical economics but in economic history or economic sociology. . . . However, the statements of these sciences can claim no universal validity, for they deal either with the economic sentiments of particular historical individuals or with types of economic activity for which the economic acts in question are evidence. . . . In our view, pure economics is a perfect example of an objective meaning-complex about subjective meaning—complexes, in other words, of an objective meaning—configuration stipulating the typical and invariant subjective experiences of anyone who acts within an economic framework. . . . Excluded from such a scheme would have to be any consideration of the uses to which the “goods” are to be put after they are acquired. But once we do turn our attention to the subjective meaning of a real individual person, leaving the anonymous “anyone” behind, then of course it makes sense to speak of behavior that is atypical. . . . To be sure, such behavior is irrelevant from the point of view of economics, and it is in this sense that economic principles are, in Mises’s words, “not a statement of what usually happens, but of what necessarily must happen.”37

37

Schütz, Phenomenology of the Social World, pp. 137, 245.

4 Praxeology: The Methodology of Austrian Economics

P

raxeology is the distinctive methodology of the Austrian School. The term was first applied to the Austrian method by Ludwig von Mises, who was not only the major architect and elaborator of this methodology but also the economist who most fully and successfully applied it to the construction of economic theory.1 While the praxeological method is, to say the least, out of fashion in contemporary economics—as well as in social science generally and in the philosophy of science—it was the basic method of the earlier Austrian School and also of a considerable segment of the older Classical School, in particular of J.B. Say and Nassau W. Senior.2

Originally appeared in The Foundations of Modern Austrian Economics, Edwin Dolan, ed. (Kansas City: Sheed and Ward, 1976), pp. 19–39. 1 See in particular Ludwig von Mises, Human Action: A Treatise on Economics (New Haven, Conn.: Yale University Press, 1949); also see Mises, Epistemological Problems of Economics, George Reisman, trans. (Princeton, N.J.: D. Van Nostrand, 1960). 2 See Murray N. Rothbard, “Praxeology as the Method of the Social Sciences,” in Phenomenology and the Social Sciences, Maurice Natanson, ed., 2 vols. (Evanston, Ill.: Northwestern University Press, 1973), vol. 2, pp. 323–35; reprinted in this volume as chapter 3; also see Marian Bowley, Nassau Senior and Classical Economics (New York: Augustus M. Kelley, 1949), pp. 27–65; and Terence W. Hutchinson, “Some Themes from Investigations into Method,” in Carl Menger and the Austrian School of Economics, J.R. Hicks and Wilhelm Weber, eds. (Oxford: Clarendon Press, 1973), pp. 15–31. 59

60 Economic Controversies

Praxeology rests on the fundamental axiom that individual human beings act, that is, on the primordial fact that individuals engage in conscious actions toward chosen goals. This concept of action contrasts to purely reflexive, or knee-jerk, behavior, which is not directed toward goals. The praxeological method spins out by verbal deduction the logical implications of that primordial fact. In short, praxeological economics is the structure of logical implications of the fact that individuals act. This structure is built on the fundamental axiom of action, and has a few subsidiary axioms, such as that individuals vary and that human beings regard leisure as a valuable good. Any skeptic about deducing from such a simple base an entire system of economics, I refer to Mises’s Human Action. Furthermore, since praxeology begins with a true axiom, A, all the propositions that can be deduced from this axiom must also be true. For if A implies B, and A is true, then B must also be true. Let us consider some of the immediate implications of the action axiom. Action implies that the individual’s behavior is purposive, in short, that it is directed toward goals. Furthermore, the fact of his action implies that he has consciously chosen certain means to reach his goals. Since he wishes to attain these goals, they must be valuable to him; accordingly he must have values that govern his choices. That he employs means implies that he believes he has the technological knowledge that certain means will achieve his desired ends. Let us note that praxeology does not assume that a person’s choice of values or goals is wise or proper or that he has chosen the technologically correct method of reaching them. All that praxeology asserts is that the individual actor adopts goals and believes, whether erroneously or correctly, that he can arrive at them by the employment of certain means. All action in the real world, furthermore, must take place through time; all action takes place in some present and is directed toward the future (immediate or remote) attainment of an end. If all of a person’s desires could be instantaneously realized, there would be no reason for him to act at all.3 Furthermore, that a man acts implies 3

In answer to the criticism that not all action is directed to some future point in time, see Walter Block, “A Comment on ‘The Extraordinary Claim of Praxeology’ by Professor Gutierrez,” Theory and Decision 3 (1973): 381–82.

Method 61

that he believes action will make a difference; in other words, that he will prefer the state of affairs resulting from action to that from no action. Action therefore implies that man does not have omniscient knowledge of the future; for if he had such knowledge, no action of his would make any difference. Hence, action implies that we live in a world of an uncertain, or not fully certain, future. Accordingly, we may amend our analysis of action to say that a man chooses to employ means according to a technological plan in the present because he expects to arrive at his goals at some future time. The fact that people act necessarily implies that the means employed are scarce in relation to the desired ends; for, if all means were not scarce but superabundant, the ends would already have been attained, and there would be no need for action. Stated another way, resources that are superabundant no longer function as means, because they are no longer objects of action. Thus, air is indispensable to life and hence to the attainment of goals; however, air being superabundant is not an object of action and therefore cannot be considered a means, but rather what Mises called a “general condition of human welfare.” Where air is not superabundant, it may become an object of action, for example, where cool air is desired and warm air is transformed through air conditioning. Even with the absurdly unlikely advent of Eden (or what a few years ago was considered in some quarters to be an imminent “postscarcity” world), in which all desires could be fulfilled instantaneously, there would still be at least one scarce means: the individual’s time, each unit of which if allocated to one purpose is necessarily not allocated to some other goal.4 Such are some of the immediate implications of the axiom of action. We arrived at them by deducing the logical implications of the existing fact of human action, and hence deduced true conclusions from a true axiom. Apart from the fact that these conclusions cannot be “tested” by historical or statistical means, there is no need to test them since their truth has already been established. Historical fact enters into these conclusions only by determining which branch of the theory is applicable in any particular case. Thus, for Crusoe and

4

See Mises, Human Action, pp. 101–02; and esp., Block, “Comment,” p. 383.

62 Economic Controversies

Friday on their desert island, the praxeological theory of money is only of academic, rather than of currently applicable, interest. A fuller analysis of the relationship between theory and history in the praxeological framework will be considered below. There are, then, two parts of this axiomatic-deductive method: the process of deduction and the epistemological status of the axioms themselves. First, there is the process of deduction; why are the means verbal rather than mathematical logic?5 Without setting forth the comprehensive Austrian case against mathematical economics, one point can immediately be made: let the reader take the implications of the concept of action as developed so far in this paper and try to place them in mathematical form. And even if that could be done, what would have been accomplished except a drastic loss in meaning at each step of the deductive process? Mathematical logic is appropriate to physics—the science that has become the model science, which modern positivists and empiricists believe all other social and physical sciences should emulate. In physics the axioms and therefore the deductions are in themselves purely formal and only acquire meaning “operationally” insofar as they can explain and predict given facts. On the contrary, in praxeology, in the analysis of human action, the axioms themselves are known to be true and meaningful. As a result, each verbal step-by-step deduction is also true and meaningful; for it is the great quality of verbal propositions that each one is meaningful, whereas mathematical symbols are not meaningful in themselves. Thus Lord Keynes, scarcely an Austrian and himself a mathematician of note, leveled the following critique at mathematical symbolism in economics: It is a great fault of symbolic pseudo-mathematical methods of formalizing a system of economic analysis, that they expressly assume strict independence between the factors involved and lose all their cogency and authority if this hypothesis is disallowed: whereas, in ordinary discourse, where we are not blindly manipulating but know all the time what we are doing and what the words mean, we can keep “at the back of our heads” the necessary reserves and qualifications and the adjustments which we have to make later

5

For a typical criticism of praxeology for not using mathematical logic, see George. J. Schuller, “Rejoinder,” American Economic Review 41 (March 1951): 188.

Method 63 on, in a way in which we cannot keep complicated partial differentials “at the back” of several pages of algebra which assume that they all vanish. Too large a proportion of recent “mathematical” economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.6

Moreover, even if verbal economics could be successfully translated into mathematical symbols and then retranslated into English so as to explain the conclusions, the process makes no sense and violates the great scientific principle of Occam’s Razor: avoiding unnecessary multiplication of entities.7 Furthermore, as political scientist Bruno Leoni and mathematician Eugenio Frola pointed out, It is often claimed that translation of such a concept as the maximum from ordinary into mathematical language, involves an improvement in the logical accuracy of the concept, as well as wider opportunities for its use. But the lack of mathematical precision in ordinary language reflects precisely the behavior of individual human beings in the real world. . . . We might suspect that translation into mathematical language by itself implies a suggested transformation of human economic operators into virtual robots.8

Similarly, one of the first methodologists in economics, JeanBaptiste Say, charged that the mathematical economists 6

John Maynard Keynes, The General Theory of Employment, Interest, and Money (New York: Harcourt, Brace, 1936), pp. 297–98. 7 See Murray N. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,” in On Freedom and Free Enterprise, Mary Sennholz, ed. (Princeton, N.J.: D. Van Nostrand, 1956), p. 227; reprinted in this volume as chapter 17; Rothbard, Man, Economy, and State, 2 vols. (Princeton, N.J.: D. Van Nostrand, 1962), vol. 1, pp. 65–66. On mathematical logic as being subordinate to verbal logic, see René Poirier, “Logique,” in Vocabulaire technique et critique de la philosophie, André Lalande, ed., 6th ed. rev. (Paris: Presses Universitaires de France, 1951), pp. 574–75. 8 Bruno Leoni and Eugenio Frola, “On Mathematical Thinking in Economics” (unpublished manuscript privately distributed), pp. 23–24; the Italian version of this article is “Possibilita di applicazione della matematiche alle discipline economiche,” Il Politico 20 (1995).

Economic Controversies

64

have not been able to enunciate these questions into analytical language, without divesting them of their natural complication, by means of simplifications, and arbitrary suppressions, of which the consequences, not properly estimated, always essentially change the condition of the problem, and pervert all its results.9

More recently, Boris Ischboldin has emphasized the difference between verbal, or “language,” logic (“the actual analysis of thought stated in language expressive of reality as grasped in common experience”) and “construct” logic, which is “the application to quantitative (economic) data of the constructs of mathematics and symbolic logic which constructs may or may not have real equivalents.”10 Although himself a mathematical economist, the mathematician son of Carl Menger wrote a trenchant critique of the idea that mathematical presentation in economics is necessarily more precise than ordinary language: Consider, for example, the statements (2) To a higher price of a good, there corresponds a lower (or at any rate not a higher) demand. (2') If p denotes the price of, and q the demand for, a good, then

q = f(p) and dq = f'(p) < 0. dp Those who regard the formula (2') as more precise or “more mathematical” than the sentence (2) are under a complete misapprehension. . . . The only difference between (2) and (2') is this: since (2') is limited to functions which are differentiable and whose graphs, therefore, have tangents (which from an economic point of view are not more plausible than curvature), the sentence (2) is more general, but it is by no means less precise: it is of the same mathematical precision as (2').11 9

Jean-Baptiste Say, A Treatise on Political Economy (New York: Augustus M. Kelley, 1964), p. xxvin. 10 Boris Ischboldin, “a Critique of Econometrics,” Review of Social Economy 18, no. 2 (September 1960): 11n; Ischboldin’s discussion is based on the construction of I.M. Bochenski, “Scholastic and Aristotelian Logic,” Proceedings of the American Catholic Philosophical Association 30 (1956): 112–17. 11 Karl Menger, “Austrian Marginalism and Mathematical Economics,” in Carl Menger, p. 41.

Method

65

Turning from the deduction process to the axioms themselves, what is their epistemological status? Here the problems are obscured by a difference of opinion within the praxeological camp, particularly on the nature of the fundamental axiom of action. Ludwig von Mises, as an adherent of Kantian epistemology, asserted that the concept of action is a priori to all experience, because it is, like the law of cause and effect, part of “the essential and necessary character of the logical structure of the human mind.”12 Without delving too deeply into the murky waters of epistemology, I would deny, as an Aristotelian and neo-Thomist, any such alleged “laws of logical structure” that the human mind necessarily imposes on the chaotic structure of reality. Instead, I would call all such laws “laws of reality,” which the mind apprehends from investigating and collating the facts of the real world. My view is that the fundamental axiom and subsidiary axioms are derived from the experience of reality and are therefore in the broadest sense empirical. I would agree with the Aristotelian realist view that its doctrine is radically empirical, far more so than the post-Humean empiricism which is dominant in modern philosophy. Thus, John Wild wrote: It is impossible to reduce experience to a set of isolated impressions and atomic units. Relational structure is also given with equal evidence and certainty. The immediate data are full of determinate structure, which is easily abstracted by the mind and grasped as universal essences or possibilities.13

Furthermore, one of the pervasive data of all human experience is existence; another is consciousness, or awareness. In contrast to the Kantian view, Harmon Chapman wrote that conception is a kind of awareness, a way of apprehending things or comprehending them and not an alleged subjective manipulation of so-called generalities or universals solely “mental” or “logical” in their provenience and non-cognitive in nature. That in thus penetrating the data of sense, conception also synthesizes these data is evident. But the synthesis here involved,

12

Mises, Human Action, p. 34. John Wild, “Phenomenology and Metaphysics,” in The Return to Reason: Essays in Realistic Philosophy, John Wild, ed. (Chicago: Henry Regnery, 1953), pp. 48, 37–57. 13

66 Economic Controversies unlike the synthesis of Kant, is not a prior condition of perception, an anterior process of constituting both perception and its object, but rather a cognitive synthesis in apprehension, that is, a uniting or “comprehending” which is one with the apprehending itself. In other words, perception and experience are not the results or end products of a synthetic process a priori, but are themselves synthetic or comprehensive apprehension whose structured unity is prescribed solely by the nature of the real, that is, by the intended objects in their togetherness and not by consciousness itself whose (cognitive) nature is to apprehend the real—as it is.14

If, in the broad sense, the axioms of praxeology are radically empirical, they are far from the post-Humean empiricism that pervades the modern methodology of social science. In addition to the foregoing considerations, (1) they are so broadly based in common human experience that once enunciated they become self-evident and hence do not meet the fashionable criterion of “falsifiability”; (2) they rest, particularly the action axiom, on universal inner experience, as well as on external experience, that is, the evidence is reflective rather than purely physical; and (3) they are therefore a priori to the complex historical events to which modern empiricism confines the concept of “experience.”15 Say, perhaps the first praxeologist, explained the derivation of the axioms of economic theory as follows: Hence the advantage enjoyed by everyone who, from distinct and accurate observation, can establish the existence of these general facts, demonstrate their connection and deduce their consequences. They as certainly proceed from the nature of things as the laws of the material world. We do not imagine them; they are results disclosed to us by judicious observation and analysis. . . . Political economy . . . is composed of a few fundamental principles, and of a great number of corollaries or conclusions, drawn 14

Harmon M. Chapman, “Realism and Phenomenology,” in Return to Reason, p. 29. On the interrelated functions of sense and reason and their respective roles in human cognition of reality, see Francis H. Parker, “Realistic Epistemology,” ibid., pp. 167–69. 15 See Murray N. Rothbard, “In Defense of ‘Extreme Apriorism,’” Southern Economic Journal 23 (January 1957): 315–18; included in this volume as chapter 6. It should be clear from the current paper that the term extreme apriorism is a misnomer for praxeology.

Method 67 from these principles . . . that can be admitted by every reflecting mind.16

Friedrich A. Hayek trenchantly described the praxeological method in contrast to the methodology of the physical sciences and also underlined the broadly empirical nature of the praxeological axioms: The position of man . . . brings it about that the essential basic facts which we need for the explanation of social phenomena are part of common experience, part of the stuff of our thinking. In the social sciences it is the elements of the complex phenomena which are known beyond the possibility of dispute. In the natural sciences they can only be at best surmised. The existence of these elements is so much more certain than any regularities in the complex phenomena to which they give rise, that it is they which constitute the truly empirical factor in the social sciences. There can be little doubt that it is this different position of the empirical factor in the process of reasoning in the two groups of disciplines which is at the root of much of the confusion with regard to their logical character. The essential difference is that in the natural sciences the process of deduction has to start from some hypothesis which is the result of inductive generalizations, while in the social sciences it starts directly from known empirical elements and uses them to find the regularities in the complex phenomena which direct observations cannot establish. They are, so to speak, empirically deductive sciences, proceeding from the known elements to the regularities in the complex phenomena which cannot be directly established.17

Similarly, J.E. Cairnes wrote: The economist starts with a knowledge of ultimate causes. He is already, at the outset of his enterprise in the position which the physicist only attains after ages of laborious research. . . . For the discovery of such premises no elaborate process of induction is needed . . . for this reason, that we have, or may have if we choose to turn our attention to the subject, direct knowledge of these causes in our consciousness of what passes in our own minds, and 16

Say, A Treatise on Political Economy, pp. xxv–xxvi, xlv. Friedrich A. Hayek, “The Nature and History of the Problem,” in Collectivist Economic Planning, F.A. Hayek, ed. (London: George Routledge and Sons, 1935), p 11. 17

68 Economic Controversies in the information which our senses convey . . . to us of external facts.18

Nassau W. Senior phrased it thus: The physical sciences, being only secondarily conversant with mind, draw their premises almost exclusively from observation or hypothesis. . . . On the other hand, the mental sciences and the mental arts draw their premises principally from consciousness. The subjects with which they are chiefly conversant are the workings of the human mind. [These premises are] a very few general propositions, which are the result of observation, or consciousness, and which almost every man, as soon as he hears them, admits, as familiar to his thought, or at least, included in his previous knowledge.19

Commenting on his complete agreement with this passage, Mises wrote that these “immediately evident propositions” are “of aprioristic derivation . . . unless one wishes to call aprioristic cognition inner experience.”20 To which Marian Bowley, the biographer of Senior, justly comments: The only fundamental difference between Mises’s general attitude and Senior’s lies in Mises’s apparent denial of the possibility of using any general empirical data, i.e., facts of general observation, as initial premises. This difference, however, turns upon Mises’s basic ideas of the nature of thought, and though of general philosophic importance, has little special relevance to economic method as such.21

It should be noted that for Mises it is only the fundamental axiom of action that is a priori; he conceded that the subsidiary axioms of the diversity of mankind and nature, and of leisure as a consumers’ good, are broadly empirical. Modern post-Kantian philosophy has had a great deal of trouble encompassing self-evident propositions, which are marked precisely 18

John Elliott Cairnes, The Character and Logical Method of Political Economy, 2nd ed. (London: Macmillan, 1875), pp. 87–88; italics in the original. 19 Bowley, Nassau Senior, pp. 43, 56. 20 Mises, Epistemological Problems, p. 19. 21 Bowley, Nassau Senior, pp. 64–65.

Method 69

by their strong and evident truth rather than by being testable hypotheses, that are, in the current fashion, considered to be “falsifiable.” Sometimes it seems that the empiricists use the fashionable analytic-synthetic dichotomy, as the philosopher Hao Wang charged, to dispose of theories they find difficult to refute by dismissing them as necessarily either disguised definitions or debatable and uncertain hypotheses.22 But what if we subject the vaunted “evidence” of modern positivists and empiricists to analysis? What is it? We find that there are two types of such evidence to either confirm or refute a proposition: (1) if it violates the laws of logic, for example, implies that A = –A; or (2) if it is confirmed by empirical facts (as in a laboratory) that can be checked by many persons. But what is the nature of such “evidence” but the bringing, by various means, of propositions hitherto cloudy and obscure into clear and evident view, that is, evident to the scientific observers? In short, logical or laboratory processes serve to make it evident to the”selves” of the various observers that the propositions are either confirmed or refuted, or, to use unfashionable terminology, either true or false. But in that case propositions that are immediately evident to the selves of the observers have at least as good scientific status as the other and currently more acceptable forms of evidence. Or, as the Thomist philosopher John J. Toohey put it, Proving means making evident something which is not evident. If a truth or proposition is self-evident, it is useless to attempt to prove it; to attempt to prove it would be to attempt to make evident something which is already evident.23

The action axiom, in particular, should be, according to Aristotelian philosophy, unchallengeable and self-evident since the critic who attempts to refute it finds that he must use it in the process of alleged refutation. Thus, the axiom of the existence of human consciousness is demonstrated as being self-evident by the fact that the

22

Hao Wang, “Notes on the Analytic-Synthetic Distinction,” Theoria 21 (1995); 158; see also John Wild and J.L. Cobitz, “On the Distinction between the Analytic and Synthetic,” Philosophy and Phenomenological Research 8 (June 1948): 651–67. 23 John J. Toohey, Notes on Epistemology, rev. ed. (Washington, D.C.: Georgetown University, 1937), p. 36; italics in the original.

70 Economic Controversies

very act of denying the existence of consciousness must itself be performed by a conscious being. The philosopher R.P. Phillips called this attribute of a self-evident axiom a “boomerang principle,” since “even though we cast it away from us, it returns to us again.”24 A similar self-contradiction faces the man who attempts to refute the axiom of human action. For in doing so, he is ipso facto a person making a conscious choice of means in attempting to arrive at an adopted end: in this case the end, or goal, of trying to refute the axiom of action. He employs action in trying to refute the notion of action. Of course, a person may say that he denies the existence of selfevident principles or other established truths of the real world, but this mere saying has no epistemological validity. As Toohey pointed out, A man may say anything he pleases, but he cannot think or do anything he pleases. He may say he saw a round square, but he cannot think he saw a round square. He may say, if he likes, that he saw a horse riding astride its own back, but we shall know what to think of him if he says it.25

The methodology of modern positivism and empiricism comes a cropper even in the physical sciences, to which it is much better suited than to the sciences of human action; indeed, it particularly fails where the two types of disciplines interconnect. Thus, the phenomenologist Alfred Schütz, a student of Mises at Vienna, who pioneered in applying phenomenology to the social sciences, pointed out the contradiction in the empiricists’ insistence on the principle of empirical verifiability in science, while at the same time denying the existence of “other minds” as unverifiable. But who is supposed to be doing the laboratory verification if not these selfsame “other minds” of the assembled scientists? Schütz wrote:

24

R.P. Phillips, Modern Thomistic Philosophy (Westminster, Maryland: Newman Bookshop, 1934–35), vol. 2, pp. 36–37; see also Murray N. Rothbard, “The Mantle of Science,” in Scientism and Values, Helmut Schoeck and James W. Wiggins, eds. (Princeton, N.J.: D. Van Nostrand, 1960), pp. 162–65; included in this volume as chapter 1. 25 Toohey, Notes on Epistemology, p. 10; italics in the original.

Method 71 It is . . . not understandable that the same authors who are convinced that no verification is possible for the intelligence of other human beings have such confidence in the principle of verifiability itself, which can be realized only through cooperation with others.26

In this way, the modern empiricists ignore the necessary presuppositions of the very scientific method they champion. For Schütz, knowledge of such presuppositions is “empirical” in the broadest sense, provided that we do not restrict this term to sensory perceptions of objects and events in the outer world but include the experiential form, by which common-sense thinking in everyday life understands human actions and their outcome in terms of their underlying motives and goals.27

Having dealt with the nature of praxeology, its procedures and axioms and its philosophical groundwork, let us now consider what the relationship is between praxeology and the other disciplines that study human action. In particular, what are the differences between praxeology and technology, psychology, history, and ethics—all of which are in some way concerned with human action? In brief, praxeology consists of the logical implications of the universal formal fact that people act, that they employ means to try to attain chosen ends. Technology deals with the contentual problem of how to achieve ends by adoption of means. Psychology deals with the question of why people adopt various ends and how they go about adopting them. Ethics deals with the question of what ends, or values, 26

Alfred Schütz, Collected Papers of Alfred Schütz, vol. 2: Studies in Social Theory, A. Brodersen, ed. (The Hague: Nijhoff, 1964), p. 4; see also Mises, Human Action, p. 24. 27 Alfred Schütz, Collected Papers of Alfred Schütz, vol. 1: The Problem of Social Reality, Maurice Natanson, ed. (The Hague: Nijhoff, 1962), p. 65. On the philosophical presuppositions of science, see Andrew G. Van Melsen, The Philosophy of Nature (Pittsburgh, Penn.: Duquesne University Press, 1953), pp. 6–29. On common sense as the groundwork of philosophy, see Toohey, Notes on Epistemology, pp. 74, 106–13. On the application of a similar point of view to the methodology of economics, see Frank H. Knight, “‘What is Truth’ in Economics,” in On the History and Method of Economics (Chicago: University of Chicago Press, 1956), pp. 151–78.

72 Economic Controversies

people should adopt. And history deals with ends adopted in the past, what means were used to try to achieve them—and what the consequences of these actions were. Praxeology, or economic theory in particular, is thus a unique discipline within the social sciences; for, in contrast to the others, it deals not with the content of men’s values, goals, and actions—not with what they have done or how they have acted or how they should act—but purely with the fact that they do have goals and act to attain them. The laws of utility, demand, supply, and price apply regardless of the type of goods and services desired or produced. As Joseph Dorfman wrote of Herbert J. Davenport’s Outlines of Economic Theory (1896): The ethical character of the desires was not a fundamental part of his inquiry. Men labored and underwent privation for “whiskey, cigars, and burglars’ jimmies,” he said, “as well as for food, or statuary or harvest machinery.” As long as men were willing to buy and sell “foolishness and evil,” the former commodities would be economic factors with market standing, for utility, as an economic term, meant merely adaptability to human desires. So long as men desired them, they satisfied a need and were motives to production. Therefore economics did not need to investigate the origin of choices.28

Praxeology, as well as the sound aspects of the other social sciences, rests on methodological individualism, on the fact that only individuals feel, value, think, and act. Individualism has always been charged by its critics—and always incorrectly—with the assumption that each individual is a hermetically sealed “atom,” cut off from, and uninfluenced by, other persons. This absurd misreading of methodological individualism is at the root of J.K. Galbraith’s triumphant demonstration in The Affluent Society (Boston: Houghton Mifflin, 1958) that the values and choices of individuals are influenced by other persons, and therefore—supposedly—that economic theory is invalid. Galbraith also concluded from his demonstration that these choices, because influenced, are artificial and illegitimate. The fact that praxeological economic theory rests on the universal fact of individual values and choices means, to repeat Dorfman’s summary 28

Joseph Dorfman, The Economic Mind in American Civilization, 5 vols. (New York: Viking Press, 1949), vol. 3, p. 376.

Method 73

of Davenport’s thought, that economic theory does “not need to investigate the origin of choices.” Economic theory is not based on the absurd assumption that each individual arrives at his values and choices in a vacuum, sealed off from human influence. Obviously, individuals are continually learning from and influencing each other. As F.A. Hayek wrote in his justly famous critique of Galbraith, “The Non Sequitur of the ‘Dependence Effect’”: Professor Galbraith’s argument could be easily employed, without any change of the essential terms, to demonstrate the worthlessness of literature or any other form of art. Surely an individual’s want for literature is not original with himself in the sense that he would experience it if literature were not produced. Does this then mean that the production of literature cannot be defended as satisfying a want because it is only the production which provokes the demand?29

That Austrian-School economics rests firmly from the beginning on an analysis of the fact of individual subjective values and choices unfortunately led the early Austrians to adopt the term psychological school. The result was a series of misdirected criticisms that the latest findings of psychology had not been incorporated into economic theory. It also led to misconceptions such as that the law of diminishing marginal utility rests on some psychological law of the satiety of wants. Actually, as Mises firmly pointed out, that law is praxeological rather than psychological and has nothing to do with the content of wants, for example, that the tenth spoonful of ice cream may taste less pleasurable than the ninth spoonful. Instead, it is a praxeological truth, derived from the nature of action, that the first unit of a good will be allocated to its most valuable use, the next unit to the next most valuable, and so on.30 On one point, and on one point alone, however, praxeology and the related sciences of human action take a stand in philosophical psychology: on the proposition that the human mind, consciousness, and subjectivity exist, and therefore action exists. In this it is opposed to the philosophical base of behaviorism and related doctrines and joined with all branches of classical 29

Friedrich A. Hayek, “The Non Sequitur of the ‘Dependence Effect,’” in Friedrich A. Hayek, Studies in Philosophy, Politics, and Economics (Chicago: University of Chicago Press, 1967), pp. 314–15. 30 Mises, Human Action, p. 124.

74 Economic Controversies

philosophy and with phenomenology. On all other questions, however, praxeology and psychology are distinct and separate disciplines.31 A particularly vital question is the relationship between economic theory and history. Here again, as in so many other areas of Austrian economics, Ludwig von Mises made the outstanding contribution, particularly in his Theory and History.32 It is especially curious that Mises and other praxeologists, as alleged “a priorists,” have commonly been accused of being “opposed” to history. Mises indeed held not only that economic theory does not need to be “tested” by historical fact but also that it cannot be so tested. For a fact to be usable for testing theories, it must be a simple fact, homogeneous with other facts in accessible and repeatable classes. In short, the theory that one atom of copper, one atom of sulfur, and four atoms of oxygen will combine to form a recognizable entity called copper sulfate, with known properties, is easily tested in the laboratory. Each of these atoms is homogeneous, and therefore the test is repeatable indefinitely. But each historical event, as Mises pointed out, is not simple and repeatable; each event is a complex resultant of a shifting variety of multiple causes, none of which ever remains in constant relationships with the others. Every historical event, therefore, is heterogeneous, and therefore historical events cannot be used either to test or to construct laws of history, quantitative or otherwise. We can place every atom of copper into a homogeneous class of copper atoms; we cannot do so with the events of human history. This is not to say, of course, that there are no similarities among historical events. There are many similarities, but no homogeneity. Thus, there were many similarities between the presidential election of 1968 and that of 1972, but they were scarcely homogeneous events, since they were marked by important and inescapable differences. Nor will the next election be a repeatable event to place in a homogeneous class of “elections.” Hence no scientific, and certainly no quantitative, laws can be derived from these events. Mises’s radically fundamental opposition to econometrics now becomes clear. Econometrics not only attempts to ape the natural 31

See Rothbard, “Toward a Reconstruction,” pp. 230–31. Ludwig von Mises, Theory and History (New Haven, Conn.: Yale University Press, 1957). 32

Method 75

sciences by using complex heterogeneous historical facts as if they were repeatable homogeneous laboratory facts; it also squeezes the qualitative complexity of each event into a quantitative number and then compounds the fallacy by acting as if these quantitative relations remain constant in human history. In striking contrast to the physical sciences, which rest on the empirical discovery of quantitative constants, econometrics, as Mises repeatedly emphasized, has failed to discover a single constant in human history. And given the ever-changing conditions of human will, knowledge, and values and the differences among men, it is inconceivable that econometrics can ever do so. Far from being opposed to history, the praxeologist, and not the supposed admirers of history, has profound respect for the irreducible and unique facts of human history. Furthermore, it is the praxeologist who acknowledges that individual human beings cannot legitimately be treated by the social scientist as if they were not men who have minds and act upon their values and expectations, but stones or molecules whose course can be scientifically tracked in alleged constants or quantitative laws. Moreover, as the crowning irony, it is the praxeologist who is truly empirical because he recognizes the unique and heterogeneous nature of historical facts; it is the self-proclaimed “empiricist” who grossly violates the facts of history by attempting to reduce them to quantitative laws. Mises wrote thus about econometricians and other forms of “quantitative economists”: There are, in the field of economics, no constant relations, and consequently no measurement is possible. If a statistician determines that a rise of 10 percent in the supply of potatoes in Atlantis at a definite time was followed by a fall of 8 percent in the price, he does not establish anything about what happened or may happen with a change in the supply of potatoes in another country or in another time. He has not “measured” the “elasticity of demand” of potatoes. He has established a unique individual historical fact. No intelligent man can doubt that the behavior of men with regard to potatoes and every other commodity is variable. Different individuals value the same things in a different way, and valuations change with the same individuals with changing conditions. . . . The impracticability of measurement is not due to the lack of technical methods for the establishment of measure. It is due to the absence of constant relations. . . . Economics is not, as . . . positivists repeat again and again, backward because it is not “quantitative.”

76 Economic Controversies It is not quantitative and does not measure because there are no constants. Statistical figures referring to economic events are historical data. They tell us what happened in a nonrepeatable historical case. Physical events can be interpreted on the ground of our knowledge concerning constant relations established by experiments. Historical events are not open to such an interpretation. . . . Experience of economic history is always experience of complex phenomena. It can never convey knowledge of the kind the experimenter abstracts from a laboratory experiment. Statistics is a method for the presentation of historical facts. . . . The statistics of prices is economic history. The insight that, ceteris paribus, an increase in demand must result in an increase in prices is not derived from experience. Nobody ever was or ever will be in a position to observe a change in one of the market data ceteris paribus. There is no such thing as quantitative economics. All economic quantities we know about are data of economic history. . . . Nobody is so bold as to maintain that a rise of A percent in the supply of any commodity must always—in every country and at any time—result in a fall of B percent in price. But as no quantitative economist ever ventured to define precisely on the ground of statistical experience the special conditions producing a definite deviation from the ratio A:B, the futility of his endeavors is manifest.33

Elaborating on his critique of constants Mises added: The quantities we observe in the field of human action . . . are manifestly variable. Changes occurring in them plainly affect the result of our actions. Every quantity that we can observe is a historical event, a fact which cannot be fully described without specifying the time and geographical point. The econometrician is unable to disprove this fact, which cuts the ground from under his reasoning. He cannot help admitting that there are no “behavior constants.” Nonetheless, he wants to introduce some numbers, arbitrarily chosen on the basis of historical fact, as “unknown behavior constants.” The sole excuse he advances is that his hypotheses are “saying only that these unknown numbers remain reasonably constant through a period of years.”34 Now whether such 33

Mises, Human Action, pp. 55–56, 348. Cowles Commission for Research in Economics, Report for the Period, January 1, 1948–June 30, 1949 (Chicago: University of Chicago Press, 1949), p. 7, quoted in Mises, Theory and History, pp. 10–11. 34

Method 77 a period of supposed constancy of a definite number is still lasting or whether a change in the number has already occurred can only be established later on. In retrospect it may be possible, although in rare cases only, to declare that over a (probably rather short) period an approximately stable ratio which the econometrician chooses to call a “reasonably” constant ratio prevailed between the numerical values of two factors. But this is something fundamentally different from the constants of physics. It is the assertion of a historical fact, not of a constant that can be resorted to in attempts to predict future events.35 The highly praised equations are, insofar as they apply to the future, merely equations in which all quantities are unknown.36 In the mathematical treatment of physics the distinction between constants and variables makes sense; it is essential in every instance of technological computation. In economics there are no constant relations between various magnitudes. Consequently all ascertainable data are variables, or what amounts to the same thing, historical data. The mathematical economists reiterate that the plight of mathematical economics consists in the fact that there are a great number of variables. The truth is that there are only variables and no constants. It is pointless to talk of variables where there are no invariables.37

What, then, is the proper relationship between economic theory and economic history or, more precisely, history in general? The historian’s function is to try to explain the unique historical facts that are his province; to do so adequately he must employ all the relevant theories from all the various disciplines that impinge on his problem. For historical facts are complex resultants of a myriad of causes stemming from different aspects of the human condition. Thus, the historian must be prepared to use not only praxeological economic theory but

35

Ibid., pp. 10–11. Ludwig von Mises, “Comments about the Mathematical Treatment of Economic Problems.” (Cited as “unpublished manuscript”; published as “The Equations of Mathematical Economics” in the Quarterly Journal of Austrian Economics 3, no. 1 (Spring, 2000): 27–32. 37 Mises, Theory and History, pp. 11–12; see also Leoni and Frola, “On Mathematical Thinking,” pp. 1–8; and Leland B. Yeager, “Measurement as Scientific Method in Economics,” American Journal of Economics and Sociology 16 (July 1957): 337–46. 36

78 Economic Controversies

also insights from physics, psychology, technology, and military strategy along with an interpretive understanding of the motives and goals of individuals. He must employ these tools in understanding both the goals of the various actions of history and the consequences of such actions. Because understanding diverse individuals and their interactions is involved, as well as the historical context, the historian using the tools of natural and social science is in the last analysis an “artist,” and hence there is no guarantee or even likelihood that any two historians will judge a situation in precisely the same way. While they may agree on an array of factors to explain the genesis and consequences of an event, they are unlikely to agree on the precise weight to be given each causal factor. In employing various scientific theories, they have to make judgments of relevance on which theories applied in any given case; to refer to an example used earlier in this paper, a historian of Robinson Crusoe would hardly employ the theory of money in a historical explanation of his actions on a desert island. To the economic historian, economic law is neither confirmed nor tested by historical facts; instead, the law, where relevant, is applied to help explain the facts. The facts thereby illustrate the workings of the law. The relationship between praxeological economic theory and the understanding of economic history was subtly summed up by Alfred Schütz: No economic act is conceivable without some reference to an economic actor, but the latter is absolutely anonymous; it is not you, nor I nor an entrepreneur, nor even an “economic man,” as such, but a pure universal “one.” This is the reason why the propositions of theoretical economics have just that “universal validity” which gives them the ideality of the “and so forth” and “I can do it again.” However, one can study the economic actor as such and try to find out what is going on in his mind; of course, one is not then engaged in theoretical economics but in economic history or economic sociology. . . . However, the statements of these sciences can claim no universal validity, for they deal either with the economic sentiments of particular historical individuals or with types of economic activity for which the economic acts in question are evidence. . . . In our view, pure economics is a perfect example of an objective meaning-complex about subjective meaning-complexes, in other words, of an objective meaning-configuration stipulating the typical and invariant subjective experiences of anyone who acts within

Method 79 an economic framework. . . . Excluded from such a scheme would have to be any consideration of the uses to which the “goods” are to be put after they are acquired. But once we do turn our attention to the subjective meaning of a real individual person, leaving the anonymous “anyone” behind, then of course it makes sense to speak of behavior that is atypical. . . . To be sure, such behavior is irrelevant from the point of view of economics, and it is in this sense that economic principles are, in Mises’s words, “not a statement of what usually happens, but of what necessarily must happen.”38

38

Alfred Schütz, The Phenomenology of the Social World (Evanston, Ill.: Northwestern University Press, 1967), pp. 137, 245; also see Ludwig M. Lachmann, The Legacy of Max Weber (Berkeley, Calif.: Glendessary Press, 1971), pp. 17–48.

5 Praxeology, Value Judgments, and Public Policy

E

thics is the discipline, or what is called in classical philosophy the “science,” of what goals men should or should not pursue. All men have values and place positive or negative value judgments on goods, people, and events. Ethics is the discipline that provides standards for a moral critique of these value judgments. In the final analysis, either such a discipline exists and a rational or objective system of ethics is possible, or else each individual’s value judgments are ultimately arbitrary and solely a result of individual whim. It is not my province to try to settle one of the great questions of philosophy here. But even if we believe, as I do, that an objective science of ethics exists, and even if we believe still further that ethical judgments are within the province of the historian or social scientist, one thing is certain: praxeology, economic theory, cannot itself establish ethical judgments. How could it when it deals with the formal fact that men act rather than with the content of such actions? Furthermore, praxeology is not grounded on any value judgments of the praxeologist, since what he is doing is analyzing the fact that people in general have values rather than inserting any value judgments of his own. What, then is the proper relationship of praxeology to values or ethics? Like other sciences, praxeology provides laws about reality, laws that those who frame ethical judgments disregard only at their peril. In brief, the citizen, or the “ethicist,” may have framed, in ways which we cannot deal with here, general ethical rules or goals. But in order to decide how to arrive at such goals, he must employ all the Originally appeared in The Foundations of Modern Austrian Economics, Edwin G. Dolan, ed. (Kansas City: Sheed and Ward, 1976), pp. 89–111. 81

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relevant conclusions of the various sciences, all of which are in themselves value-free. For example, let us suppose that a person’s goal is to improve his health. Having arrived at this value—which I would consider to be rational and others would consider purely emotive and arbitrary—the person tries to discover how to reach his goal. To do so, he must employ the laws and findings, value-free in themselves, of the relevant sciences. He then extends the judgment of “good,” as applied to his health, on to the means he believes will further that health. His end, the improvement of his health, he pronounces to be “good”; he then, let us say, adopts the findings of medical science that x grams of vitamin C per day will improve his health; he therefore extends the ethical pronouncement of “good”—or, more technically, of “right”—to taking vitamin C as well. Similarly, if a person decides that it is “good” for him to build a house and adopts this as his goal, he must try to use the laws of engineering—in themselves value-free—to figure out the best way of constructing that house. Felix Adler put the relationship clearly, though we may question his use of the term social before science in this context: The . . . end being given, the ethical formula being supplied from elsewhere, social science has its most important function to discharge in filling in the formula with a richer content, and, by a more comprehensive survey and study of the means that lead to the end, to give to the ethical imperatives a concreteness and definiteness of meaning which otherwise they could not possess. Thus ethical rule may enjoin upon us to promote . . . health, . . . but so long as the laws of hygiene remain unknown or ignored, the practical rules which we are to adopt in reference to health will be scanty and ineffectual. The new knowledge of hygiene which social science supplies will enrich our moral code in this particular. Certain things which we freely did before, we now know we may not do; certain things which we omitted to do, we now know we ought to do.1

Praxeology has the same methodological status as the other sciences and the same relation to ethics. Thus, to take a deliberately simple example: if our end is to be able to find gasoline when we pull 1

Felix Adler, “The Relation of Ethics to Social Science,” in Congress of Arts and Science, H.J. Rogers, ed. (Boston: Houghton Mifflin, 1906), vol. 7, p. 678.

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up to the service station, and value-free praxeological law tells us— as it does—that, if the government fixes a maximum price for any product below the free-market price, a shortage of that product will develop, then (unless other goals supervene) we will make the ethical pronouncement that it is “bad” or “wrong” for the government to impose such a measure. Praxeology, like the other sciences, is the value-free handmaiden of values and ethics. To our contention that the sciences, including praxeology, are in themselves value-free, it might be objected that it is values or ethics that direct the interest of the scientist in discovering the specific laws of his discipline. There is no question about the fact that medical science is currently far more interested in discovering a cure for cancer than in searching for a cure for some disease that might only have existed in parts of the Ukraine in the eighteenth century. But the unquestioned fact that values and ethics are important in guiding the attention of scientists to specific problems is irrelevant to the fact that the laws and disciplines of the science itself are value-free. Similarly, Crusoe on his desert island may not be particularly interested in investigating the science of bridge building, but the laws of that science itself are value-free. Ethical questions, of course, play a far smaller role in applied medicine than they do in politics or political economy. A basic reason for this is that generally the physician and his patient agree—or are supposed to agree—on the end in view: the advancement of the patient’s health. The physician can advise the patient without engaging in an intense discussion of their mutual values and goals. Of course, even here, the situation is not always that clear-cut. Two examples will reveal how ethical conflicts may arise: first, the patient needs a new kidney to continue to live; is it ethical for the physician and/or the patient to murder a third party and extract his kidney? Second, is it ethical for the physician to pursue medical research for the possible good of humanity while treating his patient as an unwitting guinea pig? These are both cases where valuational and ethical conflicts enter the picture. In economic and political questions, in contrast, ethical and value conflicts abound and permeate society. It is therefore impermissible for the economist or other social scientist to act as if he were a physician, who can generally assume complete agreement on values and goals with his patient and who can therefore prescribe

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accordingly and with no compunction. Since, then, praxeology provides no ethics whatsoever but only the data for people to pursue their various values and goals, it follows that it is impermissible for the economist qua economist to make any ethical or value pronouncements or to advocate any social or political policy whatsoever. The trouble is that most economists burn to make ethical pronouncements and to advocate political policies—to say, in effect, that policy X is “good” and policy Y “bad.” Properly, an economist may only make such pronouncements in one of two ways: either (1) to insert his own arbitrary, ad hoc personal value judgments and advocate policy clearly on that basis; or (2) to develop and defend a coherent ethical system and make his pronouncement, not as an economist, but as an ethicist, who also uses the data of economic science. But to do the latter, he must have thought deeply about ethical problems and also believe in ethics as an objective or rational discipline—and precious few economists have done either. That leaves him with the first choice: to make crystal clear that he is speaking not as an economist but as a private citizen who is making his own confessedly arbitrary and ad hoc value pronouncements. Most economists pay lip service to the impermissibility of making ethical pronouncements qua economist, but in practice they either ignore their own criteria or engage in elaborate procedures to evade them. Why? We can think of two possible reasons. One is the disreputable reason that, if Professor Doakes advocates policy X and basically does so as an economics professor, he will be listened to and followed with awe and respect; whereas if he advocates policy X as plain Joe Doakes, the mass of the citizenry may come to the perfectly valid conclusion that their own arbitrary and ad hoc value judgments are just as good as his, and that therefore there is no particular reason to listen to him at all. A second and more responsible reason might be that the economist, despite his professed disbelief in a science of ethics, realizes deep down that there is something unfortunate—we might even say bad—about unscientific and arbitrary value judgments in public policy, and so he tries desperately to square the circle, in order to be able to advocate policy in some sort of scientific manner. While squaring this circle is impossible, as we shall consider further, I believe that this putative uneasiness at making arbitrary value judgments is correct. While it is surely admirable (ethical?) for an

Method 85

economist to distinguish clearly and carefully between the value-free science and his own value judgments, I contend further that it is the responsibility of any scientist, indeed any intellectual, to refrain from any value judgment whatever unless he can support it on the basis of a coherent and defensible ethical system. This means, of course, that those economists who, on whatever grounds, are not prepared to think about and advance an ethical system should strictly refrain from any value pronouncements or policy conclusions at all. This position is of course itself an ethical one. But it relates to the ethical system that is the precondition of all science; for, even though particular scientific laws are themselves value-free, the very procedures of science rest on the ethical norm of honesty and the search for truth; that norm, I believe, includes the responsibility to lend coherence and system to all one’s pronouncements including valuational ones. I might add in passing that anyone conceding the necessity of honesty in science ipso facto becomes willy-nilly a believer in objective ethics, but I will leave that point to the ethical subjectivists to grapple with.2 Let me clarify with an example. Henry C. Simons, after trenchantly criticizing various allegedly scientific arguments for progressive taxation, came out flatly in favor of progression as follows: The case for drastic progression in taxation must be rested on the case against inequality—on the ethical or aesthetic judgment that the prevailing distribution of wealth and income reveals a degree (and/or kind) of inequality which is distinctly evil or unlovely.3

My point is that, while it was surely admirable for Simons to make the distinction between his scientific and his personal value judgments crystal clear, that is not enough for him to escape censure. He had, at the very least, the responsibility of analyzing the nature and implications of egalitarianism and then attempting to defend it 2

See the critique of the inconsistency of the championing of intellectual honesty by the great opponent of objective ethics, Max Weber, in Leo Strauss, Natural Right and History (Chicago: University of Chicago Press, 1953), pp. 47–48. 3 Henry C. Simons, Personal Income Taxation (1938), pp. 18–19, cited by Walter J. Blum and Harry Kalven, Jr., The Uneasy Case for Progressive Taxation (Chicago: University of Chicago Press, 1953), p. 72.

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as an ethical norm. Flat declarations of unsupported value judgments should be impermissible in intellectual, let alone scientific, discourse. In the intellectual quest for truth it is scarcely sufficient to proclaim one’s value judgments as if they must be accepted as tablets from on high and not be themselves subject to intellectual criticism and evaluation. Suppose, for example, that Simons’s ethical or esthetic judgment was not on behalf of equality but of a very different social ideal. Suppose that instead he had come out in favor of the murder of all short people, of all adults under five feet six inches in height. And suppose that his sole defense of this proposal were the following: The case for the liquidation of all short people must be rested on the case against the existence of short people—on the ethical or aesthetic judgment that the prevailing number of short adults is distinctly evil or unlovely.

One wonders if the reception accorded to Simons’s remarks by his fellow economists or social scientists would have been quite the same.4 Yet, of course, the logic of his stance would have been precisely the same. More usual is an attempt by the economist to place himself in the status of the physician of our foregoing example, that is, as someone who is merely agreeing to or ratifying the values either of a majority in society or of every person in it. But even in these cases, it must be remembered that the physician is in no sense value-free, though he is simply sharing the value of his patient, and that the value of health is so deeply shared that there is no occasion for making it explicit. Nevertheless, the physician does make a value judgment, and, even if every person in society shares the same value and goal, the economist who goes along with such a value is still making a value judgment, even if indeed universally shared. He is still illegitimately going beyond the bounds of the economist per se, and his value judgments must still be supported by rational argument.

4

Murray N. Rothbard, Egalitarianism as a Revolt against Nature, and Other Essays (Washington, D.C.: Libertarian Review Press, 1974), pp. 2–3; also see Rothbard, Power and Market (Menlo Park, Calif.: Institute for Humane Studies, 1970), pp. 157–60.

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The weakest path to an economist’s adoption of social values is to appeal to the majority. Thus, John F. Due commented on the progressive income tax in his text on public finance: The strongest argument for progression is the fact that the consensus of opinion in society today regards progression as necessary for equity. This is, in turn, based on the principle that the pattern of income distribution, before taxes, involves excessive inequality (which) can be condemned on the basis of inherent unfairness in terms of the standards accepted by society.5

But once again the fact that the majority of society might hold market inequality to be “unfair” does not absolve Due of the fact that, in ratifying that judgment, he himself made that value judgment and went beyond the province of the economist. Furthermore, on scientific standards, the ad hoc and arbitrary value judgments of the majority are no better than those of one person, and Due, like Simons, failed to support that judgment with any sort of argumentation. Furthermore, when we ratify the majority, what of the rights or the utilities of the minority? Felix Adler’s strictures against the utilitarian ethic clearly apply here: Other sociologists frankly express their ideals in terms of quantity and, in the fashion of Bentham, pronounce the greatest happiness of the greatest number to be the social end, although they fail to make it intelligible why the happiness of the greater number should be cogent as an end upon those who happen to belong to the lesser number.6

Again, with Due as with Simons, one wonders about the treatment of such a position by the American intellectual community if his imprimatur on the “consensus of opinion in society today” had been applied instead to the treatment of the Jews in Germany in the 1930s. Just as the physician who advises his client commits himself to the ethic of good health, so the economist who advises a client is not, much as he would like to think so, a mere technician who is not committing himself to the value judgment of his client and his client’s 5

John F. Due, Government Finance (Homewood, Ill.: Richard D. Irwin, 1954), pp. 128–29. 6 Adler, “Relation of Ethics,” p. 673.

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goals. By advising a steel company on how to increase its profits, the economist is thereby committed to share in the steel entrepreneur’s value judgment that his greater profit is a desirable goal. It is even more important to make this point about the economist who advises the State. In so doing, he commits himself to the value judgments, not simply of the majority of society as in the case of Due, but to the value judgments of the rulers of the State apparatus. To take a deliberately dramatic example, let us suppose that an economist is hired by the Nazis to advise the government on the most efficient method of setting up concentration camps. By agreeing to help make more efficient concentration camps, he is agreeing to make them “better,” in short, he is committing himself willy-nilly to concentration camps as a desirable goal. And he would, again, still be doing so even if this goal were heartily endorsed by the great majority of the German public. To underscore this point, it should be clear that an economist whose value system leads him to oppose concentration camps might well give such advice to the German government as to make the concentration camps as inefficient as possible, that is to sabotage their operations. In short, whatever advice he gives to his clients, a value commitment by the economist, either for or against his clients’ goals, is inescapable.7 A more interesting variant of the economist’s attempt to make value-free value judgments is the “unanimity principle,” recently emphasized by James M. Buchanan. Here the idea is that the economist can safely advocate a policy if everyone in the society also advocates it. But, in the first place, the unanimity principle is still subject to the aforementioned strictures: that, even if the economist simply shares in everyone else’s value judgment, he is still making a value judgment. Furthermore, the superficial attractiveness of the unanimity principle fades away under more stringent analysis; for unanimity is scarcely sufficient to establish an ethical principle. For one thing, the requirement of unanimity for any action or change begins with and freezes the status quo. For an action to be adopted, the justice and ethical propriety of the status quo must first be established, and of course economics can scarcely be prepared to do that.

7

Murray N. Rothbard, “Value Implications of Economic Theory,” The American Economist 17 (Spring, 1973): 38–39; included in this volume as chapter 12.

Method 89

The economist who advocates the unanimity principle as a seemingly value-free pronouncement is thereby making a massive and totally unsupported value judgment on behalf of the status quo. A stark but not untypical example was the debate in the British Parliament during the early nineteenth century on the abolition of slavery, when early adherents of the “compensation principle” variant of the unanimity principle (which has its own additional and grave problems) maintained that the masters must be compensated for the loss of their investment in slaves. At that point, Benjamin Pearson, a member of the Manchester School, declared that “he had thought it was the slaves who should have been compensated.”8 Here is a striking example of the need in advocating public policy of some ethical system, of a concept of justice. Those ethicists among us who hold that slavery is unjust would always oppose the idea of compensating the masters and would rather think in terms of reparations to compensate the slaves for their years of oppression. But what is there for the value-free economist to say? There are other grave problems with the compensation principle as a salvaging attempt to make it possible for value-free economists to advocate public policy. For the compensation principle assumes that it is conceptually possible to measure losses and thereby to compensate losers. But since praxeology informs us that “utility” and “cost” are purely subjective (psychic) concepts and therefore cannot be measured or even estimated by outside observers, it becomes impossible for such observers to weigh “social costs” and “social benefits” and to decide that the latter outweigh the former for any public policy, much less to make the compensations involved so that the losers are no longer losers. The usual attempt is to measure psychic losses in utility by the monetary price of an asset; thus, if a railroad damages the land of a farmer by smoke, it is assumed that the farmer’s loss can be measured by the market price of the land. But this ignores the facts that the farmer may have a psychic attachment to the land that puts its value far above the market price and that— especially in this kind of situation that does not involve direct action and exchange by the individuals—it is impossible to find out what

8

William D. Grampp, The Manchester School of Economics (Stanford, Calif.: Stanford University Press, 1960), p. 59; also see Rothbard, “Value Implications,” pp. 36–37.

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the farmer’s psychic attachment to the land may be worth. He may say, for example, that his attachment to the land requires the compensation of $10 million, even though the market price is $100,000, but of course he may be lying. However, the government or other outside observer has no scientific way of finding out one way or another.9 Furthermore, the existence in the society of just one militant anarchist, whose psychic grievance against government is such that he cannot be compensated for his psychic disutility from the existence of government, is enough by itself to destroy the social-utility and compensation-principle case for any government action whatever. And surely at least one such anarchist exists. Can praxeological economics, then, say nothing about social utility? Not quite. If we define an “increase in social utility” in the Paretian manner as a situation where one or more persons gain in utility while nobody loses, then praxeology finds a definite, but restricted, role for the concept. But it is a role where social utilities remain unmeasurable and incomparable between persons. Briefly, praxeology maintains that when a person acts, his utility, or at least his ex ante utility, increases; he expects to enjoy a psychic benefit from the act, otherwise he would not have done it. When, in a voluntary free-market exchange, for example, I buy a newspaper from a newsdealer for 15 cents, I demonstrate by my action that I prefer (at least ex ante) the newspaper to the 15 cents, while the newsdealer demonstrates by his action the reverse order of preference. Since each of us is better off by the exchange, both the newsdealer and I have demonstrably gained in utility, while nothing has demonstrably happened to anyone else. Elsewhere I have called this praxeological concept “demonstrated preference,” in which action demonstrates preference, in contrast to various forms of psychologizing, which tries to measure other persons’ value scales apart from action, and to behaviorism, which assumes that such values or preferences do not exist.10 The compensation principle that

9

For a further analysis of this question, see Walter Block, “Coase and Demsetz on Private Property Rights: A comment,” Journal of Libertarian Studies 1, no. 2 (Spring, 1977): 112–15. 10 Murray N. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics” in On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises, Mary Sennholz, ed. (Princeton, N.J.: Van Nostrand, 1956), pp. 224–32, 243–63; included in this volume as chapter 17.

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I have been criticizing rests on the illegitimate psychologizing notion that a scientific economist-observer can know anything about someone else’s value scale except as it is demonstrated through such action as the purchase or sale of a newspaper. And since the compensation principle is necessarily divorced from demonstrated preference, it cannot be employed by scientific economists. Incidentally, I might note here that “demonstrated preference” is very different from Samuelson’s famous concept of “revealed preference,” for Samuelson, in illegitimate psychologizing fashion, assumed the existence of an underlying preference scale that forms the basis of a person’s action and that remains constant in the course of his actions over time. There is, however, no warrant for the scientific economist to make any such assumption. All we can say is that an action, at a specific point of time, reveals some of a person’s preferences at that time. There is no warrant for assuming that such preference orderings remain constant over time.11 Now since praxeology shows, by the concept of demonstrated preference, that both the newsdealer and I gain in utility from the exchange, and nothing has demonstrably happened to anyone else, we can conclude scientifically, as praxeological economists, that social utility has increased from the sale and purchase of the newspaper— since we have defined social utility in the Paretian manner. It is true, of course, that third parties may well be grinding their teeth in hatred at the exchange. There may be people, for example, who through envy suffer psychic loss because the newspaper dealer and/or I have gained. Therefore, if we employ the Paretian definition of “social utility” in the usual psychologizing sense, we can say nothing about social utility one way or the other. But if we confine the concept to its strict scientific compass in demonstrated preference, then we can state that social utility increases from the exchange. Still further, we may know as historians, from interpretive understanding of the hearts and minds of envious neighbors, that they do lose in utility. But we are trying to determine in this paper precisely what scientific economists can say 11

Ibid., pp. 228–30; also see Ludwig von Mises, Human Action: A Treatise on Economics (New Haven, Conn.: Yale University Press, 1949), pp. 102–04. Samuelson’s views may be found, among other places, in Paul A. Samuelson, “The Empirical Implications of Utility Analysis,” Econometrica 6 (October 1938): 334–56; and Foundations of Economics (Cambridge, Mass.: Harvard University Press, 1947), pp. 146–63.

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about social utility or can advocate for public policy, and since they must confine themselves to demonstrated preference, they must affirm that social utility has increased. Conversely, since every act of the State involves coercion, at least the coercion of taxation, and since in its every act there is at least one demonstrable loser in utility, we must also conclude that no act whatever of the State can increase social utility. Here, of course, is another good reason why the economic scientist cannot use the concept of “social utility” to establish any sort of unanimity principle or any other case for government action. It has been pointed out that, similarly, we cannot say that any action of the State decreases social utility, at least in the short term, and that too is correct. We must emphasize, however, that the praxeological conclusion that the free market maximizes social utility is not sufficient to enable the praxeological economist to advocate the free market while abstaining from value judgments or from an ethical system. In the first place, why should an economist favor increasing social utility? This in itself requires an ethical or value judgment. And, second, the socialutility concept has many other failings, including the fact that while the envious and the egalitarian or the admirer of coercion per se may not be included in the social-utility concept, the contemporary historian knows that he is there, lurking in the wings; it therefore requires an ethical judgment, which cannot be supplied by praxeology, to overrule him. Furthermore, many of the strictures against the unanimity principle apply here too; for example, should we really be eager to preserve the utility of the slaveholder against loss? And if so, why? Let us now turn to the position of Ludwig von Mises on the entire matter of praxeology, value judgments, and the advocacy of public policy. The case of Mises is particularly interesting, not only because he was a leader in the modern Austrian School and in praxeology, but also because he was, of all the economists in the twentieth century, the most uncompromising and passionate adherent of laissez-faire and at the same time the most rigorous and uncompromising advocate of value-free economics and opponent of any sort of objective ethics. How then did he attempt to reconcile these two positions?12 12

For a posing of this question, see William E. Rappard, “On Reading von Mises,” in On Freedom and Free Enterprise, Mary Sennholz, ed., pp. 17–33.

Method 93

Essentially, Mises offered two very different solutions to this problem. The first is a variant of the unanimity principle. Essentially this variant affirms that an economist per se cannot say that a given governmental policy is “good” or “bad.” However, if a given policy will lead to consequences, as explained by praxeology, that every one of the supporters of the policy will agree is bad, then the value-free economist is justified in calling the policy a “bad” one. Thus, Mises wrote: An economist investigates whether a measure a can bring about the result p for the attainment of which it is recommended, and finds that a does not result in p but in g, an effect which even the supporters of the measure a consider undesirable. If the economist states the outcome of his investigation by saying that a is a bad measure, he does not pronounce a judgment of value. He merely says that from the point of view of those aiming at the goal p, the measure a is inappropriate.13

And again: Economics does not say that . . . government interference with the prices of only one commodity . . . is unfair, bad, or unfeasible. It says, that it makes conditions worse, not better, from the point of view of the government and those backing its interference.14

Now this is surely an ingenious attempt to allow pronouncements of “good” or “bad” by the economist without making a value judgment; for the economist is supposed to be only a praxeologist, a technician, pointing out to his readers or listeners that they will all consider a policy “bad” once he reveals its full consequences. But ingenious as it is, the attempt completely fails. For how could Mises know what the advocates of the particular policy consider desirable? How could he know what their value scales are now or what they will be when the consequences of the measure appear? One of the great contributions of praxeology, as I have pointed out above, is that the praxeologist, the economist, doesn’t know what anyone’s value scales are except as those value preferences are demonstrated by a person’s concrete action. In the case of my purchase of the

13 14

Mises, Human Action, p. 879. Ibid., p. 758; italics in the original.

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newspaper, historians or psychologists may make more or less informed estimates of the newsdealers' or my value scales through the process of interpretive understanding, but all that the economist can know scientifically and with certainty is the preference relative to 15 cents or the newspaper as demonstrated through concrete action. Mises himself emphasized that one must not forget that the scale of values or wants manifests itself only in the reality of action. These scales have no independent existence apart from the actual behavior of individuals. The only source from which our knowledge concerning these scales is derived is the observation of a man’s actions. Every action is always in perfect agreement with the scale of values or wants because these scales are nothing but an instrument for the interpretation of a man’s acting.15

Given Mises’s own analysis, then, how can the economist know what the motives for advocating various policies really are or how people will regard the consequences of these policies? Thus, Mises, qua praxeologist, might show that price controls (to use his example) will lead to unforeseen shortages of a good to the consumers. But how could Mises know that some advocates of price controls do not want shortages? They may, for example, be socialists, anxious to use the controls as a step toward full collectivism. Some may be egalitarians who prefer shortages because the rich will not be able to use their money to buy more of the product than poorer people. Others may be one of the legion of contemporary intellectuals who are eternally complaining about the excessive affluence of our society or about the great waste of energy; they may all delight in the shortages of goods. Still others may favor price controls, even after learning of the shortages, because they or their political allies will enjoy well-paying jobs or power in a price-control bureaucracy. All sorts of such possibilities exist, and none of them is compatible with the assertion of Mises, as a value-free economist, that all supporters of price controls—or of any other government intervention—must concede, after learning economics, that the measure is “bad.” In fact, once Mises conceded that even a single advocate of price controls or any other interventionist measure may acknowledge the economic 15

Ibid., p. 95.

Method 95

consequences and still favor it, he could no longer call any of these measures “bad” or “good” or even “appropriate” or “inappropriate” without inserting into his economic policy pronouncements the very value judgments that he himself held to be inadmissible as a scientist of human action.16 He would no longer be a technical reporter to all advocates of a certain policy but an advocate participating on one side of a value conflict. Moreover, there is another fundamental reason for advocates of “inappropriate” policies to refuse to change their minds even after hearing and acknowledging the praxeological chain of consequences. For praxeology may indeed show that all types of government policies will have consequences that most people, at least, will tend to abhor. But, and this is a vital qualification, most of these consequences take time, some a great deal of time. No economist has done more than Ludwig von Mises to elucidate the universality of time preference in human affairs—the praxeological law that everyone prefers to attain a given satisfaction sooner than later. And certainly Mises, as a value-free scientist, could never presume to criticize anyone’s rate of time preference, to say that A’s was “too high” and B’s “too low.” But, in that case, what about the high-time-preference people in society who retort to the praxeologist: “Perhaps this high tax and subsidy policy will lead to a decline of capital; perhaps even the price control will lead to shortages, but I don’t care. Having a high time preference, I value more highly the short-run subsidies, or the short-run enjoyment of buying the current good at cheaper prices, than the prospect of suffering the future consequences.” And Mises, as a value-free scientist and opponent of any concept of objective ethics, could not call them wrong. There is no way that he could assert the superiority of the long run over the short run without overriding the values of the high-time-preference people; and that could not be cogently done without abandoning his own subjectivist ethics. In this connection, one of Mises’s basic arguments for the free market is that, on the market, there is a “harmony of the rightly understood interests of all members of the market society.” It is clear from his discussion that he could not merely mean “interests” after 16

Mises himself conceded at one point that a government or a political party may advocate policies for “demagogic,” that is, for hidden and unannounced, reasons (ibid., p. 104n).

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learning the praxeological consequences of market activity or of government intervention. He also, and in particular, meant people’s long-run interests. As he stated, “For ‘rightly understood’ interests we may as well say interests ‘in the long run.’”17 But what about the high-time-preference folk, who prefer to consult their short-run interests? How can the long run be called “better” than the short run? Why is “right understanding” necessarily the long run? We see, therefore, that Mises’s attempt to advocate laissez-faire while remaining value-free, by assuming that all of the advocates of government intervention will abandon their position once they learn of its consequences, falls completely to the ground. There is another and very different way, however, that Mises attempted to reconcile his passionate advocacy of laissez-faire with the absolute value-freedom of the scientist. This was to take a position much more compatible with praxeology, by recognizing that the economist qua economist can only trace chains of cause and effect and may not engage in value judgments or advocate public policy. In so doing, Mises conceded that the economic scientist cannot advocate laissez-faire but then added that as a citizen he can do so. Mises, as a citizen, proposed a value system but it is a curiously scanty one. For he was here caught in a dilemma. As a praxeologist he knew that he could not as an economic scientist pronounce value judgments or advocate policy. Yet he could not bring himself simply to assert and inject arbitrary value judgments. And so, as a utilitarian (for Mises, along with most economists, was indeed a utilitarian in ethics, although a Kantian in epistemology), he made only one narrow value judgment: that he desired to fulfill the goals of the majority of the public (happily, in this formulation, Mises did not presume to know the goals of everyone). As Mises explained in his second variant: Liberalism (i.e., laissez-faire liberalism) is a political doctrine. . . . As a political doctrine liberalism (in contrast to economic science) is not neutral with regard to values and ultimate ends sought by action. It assumes that all men or at least the majority of people are intent upon attaining certain goals. It gives them information about the means suitable to the realization of their plans. The champions of liberal doctrines are fully aware of the fact that their

17

Ibid., p. 670 and note.

Method 97 teachings are valid only for people who are committed to their valuational principles. While praxeology, and therefore economics too, uses the terms happiness and removal of uneasiness in a purely formal sense, liberalism attaches to them a concrete meaning. It presupposes that people prefer life to death, health to sickness . . . abundance to poverty. It teaches men how to act in accordance with these valuations.18

In this second variant, Mises successfully escaped the self-contradiction of being a value-free praxeologist advocating laissez-faire. Granting in this variant that the economist may not make such advocacy, he took his stand as a citizen willing to make value judgments. But he was not willing, as Simons was, to simply assert an ad hoc value judgment; presumably he felt that a valuing intellectual must present some sort of system to justify such value judgments. But for Mises the utilitarian, his system is a curiously bloodless one; even as a valuing laissez-faire liberal, he was only willing to make the one value judgment that he joined the majority of the people in favoring their common peace, prosperity, and abundance. In this way, as an opponent of objective ethics, and uncomfortable as he must have been with making any value judgments even as a citizen, he made the minimal possible degree of such judgments; true to his utilitarian position his value judgment is the desirability of fulfilling the subjectively desired goals of the bulk of the populace. A full critique of this position must involve a critique of utilitarian ethics itself, and this cannot be done here. But a few points may be made. In the first place, while praxeology can indeed demonstrate that laissez-faire will lead to harmony, prosperity, and abundance, while government intervention leads to conflict and impoverishment,19 and while it is probably true that most people value the former highly, it is not true that these are their only goals or values. The great analyst of ranked value scales and diminishing marginal utility should have been more aware of such competing values and goals. For example, many people, whether through envy or a misplaced theory of justice, may prefer far more equality of income than will be attained on the free market. Many people, pace the aforementioned intellectuals, may want less abundance in order to whittle down our 18 19

Ibid., pp. 153–54. Rothbard, Power and Market, pp. 194–96.

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allegedly excessive affluence. Others, as I have mentioned, may prefer to loot the capital of the rich or the businessman in the short run, while acknowledging but dismissing the long-run ill effects, because they have high time preference. Probably very few of these people will want to push statist measures to the point of total impoverishment and destruction—although this may happen, as in the case of Communist China. But a majority coalition of the foregoing might well opt for some reduction in wealth and prosperity on behalf of these other values. They may well decide that it is worth sacrificing a modicum of wealth and efficient production because of the high opportunity costs of not being able to enjoy an alleviation of envy, or a lust for power, or a submission to power, or, for example, the thrill of “national unity,” which they might enjoy from a (short-lived) economic crisis. What could Mises reply to a majority of the public who have indeed considered all the praxeological consequences and still prefer a modicum—or, for that matter, even a drastic amount—of statism in order to achieve some of their competing goals? As a utilitarian, he could not quarrel with the ethical nature of their chosen goals: for he had to confine himself to the one value judgment that he favored the majority achieving their chosen goals. The only reply that Mises could make within his own framework was to point out that government intervention has a cumulative effect, that eventually the economy must move either toward the free market or toward full socialism, which praxeology shows will bring chaos and drastic impoverishment, at least to an industrial society. But this too, is not a fully satisfactory answer. While many programs of statist intervention—especially price controls—are indeed cumulative, others are not. Furthermore, the cumulative impact takes such a long time that the time preferences of the majority would probably lead them, in full acknowledgement of the consequences, to ignore the effect. And then what? Mises attempted to use the cumulative argument to answer the contention that the majority of the public prefer egalitarian measures even knowingly at the expense of a portion of their own wealth. Mises’s comment was that the “reserve fund” was on the point of being exhausted in Europe, and therefore that any further egalitarian measures would have to come directly out of the pockets of the masses through increased taxation. Mises assumed that once this became clear, the masses would no longer support interventionist

Method 99

measures.20 In the first place, this is no argument against the previous egalitarian measures or in favor of their repeal. But secondly, while the masses might be convinced, there is certainly no apodictic certainty involved; the masses have in the past and presumably will in the future continue knowingly to support egalitarian and other statist measures on behalf of other goals, despite the knowledge that their income and wealth would be reduced. Thus, as William E. Rappard pointed out in his thoughtful critique of Mises’s position: does the British voter, for instance, favor confiscatory taxation of large incomes primarily in the hope that it will redound to his material advantage, or in the certainty that it tends to reduce unwelcome and irritating social inequalities? In general, is the urge towards equality in our modern democracies not often stronger than the desire to improve one’s material lot?21

Rappard also noted that in his own country, Switzerland, the urban industrial and commercial majority of the country have repeatedly, and often at popular referendums, endorsed measures to subsidize the minority of farmers in a deliberate effort to retard industrialization and the growth of their own incomes. The urban majority did not do so in the “absurd belief that they were thereby increasing their real income.” Instead, “quite deliberately and expressly, political parties have sacrificed the immediate material welfare of their members in order to prevent, or at least somewhat to retard, the complete industrialization of the country. A more agricultural Switzerland, though poorer, such is the dominant wish of the Swiss people today.”22 The point here is that Mises, not only as a praxeologist but also as a utilitarian liberal, could have no word of criticism against these statist measures once the majority of the public take their praxeological consequences into account and choose them anyway on behalf of goals other than wealth and prosperity. Furthermore, there are other types of statist intervention that clearly have little or no cumulative effect and that may even have very little effect in diminishing production or prosperity. Let us, for

20

Mises, Human Action, pp. 851–55. Rappard, “On Reading von Mises,” pp. 32–33. 22 Ibid., p. 33. 21

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example, assume—and this assumption is not very farfetched in view of the record of human history—that the great majority of a society hate and revile redheads, perhaps, to cite Simons again, because they find redheads “evil or unlovely.” Let us further assume that there are very few redheads in the society. This large majority then decide that they would like very much to murder all redheads. Here they are; the murder of redheads is high on the value scales of the great majority of the public; there are few redheads so that there will be little loss in production on the market. How could Mises rebut this proposed policy either as a praxeologist or as a utilitarian liberal? I submit that he could not do so. Mises made one further attempt to establish his position, but it was even less successful. Criticizing the arguments for state intervention on behalf of equality or other moral concerns, he dismissed them as “emotional talk.” After reaffirming that “praxeology and economics . . . are neutral with regard to any moral precepts,” and asserting that “the fact that the immense majority of men prefer a richer supply of material goods to a less ample supply is a datum of history; it does not have any place in economic theory,” he concluded by insisting that “he who disagrees with the teachings of economics ought to refute them by discursive reasoning, not by . . . the appeal to arbitrary, allegedly ethical standards.”23 But I submit that this will not do; for Mises would have to concede that no one can decide upon any policy whatever unless he makes an ultimate ethical or value judgment. But since this is so, and since according to Mises all ultimate value judgments or ethical standards are arbitrary, how then could he denounce these particular ethical judgments as “arbitrary”? Furthermore, it was hardly correct for Mises to dismiss these judgments as “emotional,” since for him as a utilitarian, reason cannot establish ultimate ethical principles, which can therefore only be established by subjective emotions. It was pointless for Mises to call for his critics to use “discursive reasoning” since he himself denied that discursive reasoning can be used to establish ultimate ethical values. Furthermore, the man whose ultimate ethical principles would lead him to support the free market 23

Ludwig von Mises, “Epistemological Relativism in the Sciences of Human Action,” in Relativism and the Study of Man, Helmut Schoeck and James W. Wiggins, eds. (Princeton, N.J.: D. Van Nostrand, 1961), p. 133.

Method 101

could also be dismissed by Mises as equally “arbitrary” and “emotional,” even if he takes the laws of praxeology into account before making his ultimately ethical decision. And we have seen above that the majority of the public very often have other goals which they hold, at least to a certain extent, higher than their own material wellbeing. The burden of this paper has been to show that, while praxeological economic theory is extremely useful for providing data and knowledge for framing economic policy, it cannot be sufficient by itself to enable the economist to make any value pronouncements or to advocate any public policy whatsoever. More specifically, Ludwig von Mises to the contrary notwithstanding, neither praxeological economics nor Mises’s utilitarian liberalism is sufficient to make the case for laissez-faire and the free-market economy. To make such a case, one must go beyond economics and utilitarianism to establish an objective ethics that affirms the overriding value of liberty and morally condemns all forms of statism, from egalitarianism to the murder of redheads, as well as such goals as the lust for power and the satisfaction of envy. To make the full case for liberty, one cannot be a methodological slave to every goal that the majority of the public might happen to cherish.

6 In Defense of “Extreme Apriorism”

T

he stimulating methodological controversy between Professors Machlup and Hutchison proves that there are sometimes more than two sides to every question.1 In many ways, the two are debating at cross-purposes: Professor Hutchison is primarily tilting against the methodological (and political) views of Professor Ludwig von Mises; his most serious charge is that Professor Machlup’s entire position is, at bottom, an attempt to cloak the Misesian heresy in the garments of epistemological respectability. Professor Machlup’s reply, quite properly, barely mentions Mises; for, in fact, their methodological views are poles apart. (Machlup’s position is close to the central “positivist” tradition of economic methodology.) But, in the meanwhile, we find that Professor Mises and “extreme apriorism” go undefended in the debate. Perhaps an extreme apriorist’s contribution to this discussion may prove helpful. First, it should be made clear that neither Professor Machlup nor Professor Hutchison is what Mises calls a praxeologist, that is, neither believes (a) that the fundamental axioms and premises of economics are absolutely true; (b) that the theorems and conclusions deduced by the laws of logic from these postulates are therefore absolutely true; (c) that there is consequently no need for

Originally appeared in the Southern Economic Journal (January 1957): 314–20. 1 Terence W. Hutchison, “Professor Machlup on Verification in Economics,” Southern Economic Journal (April 1956): 476–83; Fritz Machlup, “Rejoinder to a Reluctant Ultra-Empiricist,” ibid., pp. 483–93. 103

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empirical “testing,” either of the premises or the conclusions; and (d) that the deduced theorems could not be tested even if it were desirable.2 Both disputants are eager to test economic laws empirically. The crucial difference is that Professor Machlup adheres to the orthodox positivist position that the assumptions need not be verified so long as their deduced consequents may be proven true—essentially the position of Professor Milton Friedman—while Professor Hutchison, wary of shaky assumptions takes the more empirical—or institutionalist—approach that the assumptions had better be verified as well. Strange as it may seem for an ultra-apriorist, Hutchison’s position strikes me as the better of the two. If one must choose between two brands of empiricism, it seems like folly to put one’s trust in procedures for testing only conclusions by fact. Far better to make sure that the assumptions also are correct. Here I must salute Professor Hutchison’s charge that the positivists rest their case on misleading analogies from the epistemology of physics. This is precisely the nub of the issue. All the positivist procedures are based on the physical sciences.3 It is physics that knows or can know its “facts” and can test 2

The praxeological tradition, though named only recently, has a long and honored place in the history of economic thought. In the first great methodological controversy in our science, John Stuart Mill was the positivist and Nassau Senior the praxeologist, with J.E. Cairnes wavering between the two positions. Later on, the praxeologic method was further developed by the early Austrians, by Wicksteed, and by Richard Strigl, reaching its full culmination in the works of Ludwig von Mises. Mises’s views may be found in Human Action (New Haven, Conn.: Yale University Press, 1949), and in his earlier Grundprobleme der Nationalökonomie [translated into English as Epistemological Problems of Economics (Princeton, N.J.: D. Van Nostrand, 1960)]. On the similarity between Senior and Mises, see Marian Bowley, Nassau Senior and Classical Economics (New York: Augustus M. Kelley, 1949), chap. 1, esp. pp. 64–65. Lionel Robbins’s Essay on the Nature and Significance of Economic Science (London: Macmillan, 1932) was emphatically praxeologic, although it did not delve into the more complex methodological problems. 3 On the differences between the methodologies of praxeology and physics, see Murray N. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,” in On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises, Mary Sennholz, ed. (Princeton, N.J.: D. Van Nostrand, 1956), pp. 226ff.; included in this volume as chapter 17.

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its conclusions against these facts, while being completely ignorant of its ultimate assumptions. In the sciences of human action, on the other hand, it is impossible to test conclusions. There is no laboratory where facts can be isolated and controlled; the “facts” of human history are complex ones, resultants of many causes. These causes can only be isolated by theory, theory that is necessarily a priori to these historical (including statistical) facts. Of course, Professor Hutchison would not go this far in rejecting empirical testing of theorems; but, being commendably skeptical of the possibilities of testing (though not of its desirability), he insists that the assumptions be verified as well. In physics, the ultimate assumptions cannot be verified directly, because we know nothing directly of the explanatory laws or causal factors. Hence the good sense of not attempting to do so, of using false assumptions such as the absence of friction, and so on. But false assumptions are the reverse of appropriate in economics. For human action is not like physics; here, the ultimate assumptions are what is clearly known, and it is precisely from these given axioms that the corpus of economic science is deduced. False or dubious assumptions in economics wreak havoc, while often proving useful in physics.4 Hence, Professor Hutchison is correct in wishing to establish the assumptions themselves. But these premises do not have to be (indeed, cannot be) verified by appeal to statistical fact. They are established, in praxeology, on a far more certain and permanent basis as definitely true. How, then, are these postulates obtained?

4

This holds also for Professor Machlup’s “heuristic principles” which area allegedly “empirically meaningful” without being verifiable as true. I do not wish to deny that false assumptions are useful in economic theory, but only when they are used as auxiliary constructs, not as premises from which empirical theories can be deduced. The most important such construct is the evenly-rotating economy, or “equilibrium.” It is not intended that this state be considered as real, either actual or potential. On the contrary, the empirically impossible ERE is constructed precisely in order to analyze theoretically a state of no-change. Only by analyzing a fictive changeless state can we arrive at a proper analysis of the changing real economic world. However, this is not a “false” assumption in the sense used by the positivists, because it is an absolutely true theory of a changeless state, if such a state could exist.

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Actually, despite the “extreme a priori” label, praxeology contains one Fundamental Axiom—the axiom of action—which may be called a priori, and a few subsidiary postulates which are actually empirical. Incredible as it may seem to those versed in the positivist tradition, from this tiny handful of premises the whole of economics is deduced—and deduced as absolutely true. Setting aside the Fundamental Axiom for a moment, the empirical postulates are: (a) small in number, and (b) so broadly based as to be hardly “empirical” in the empiricist sense of the term. To put it differently, they are so generally true as to be self-evident, as to be seen by all to be obviously true once they are stated, and hence they are not in practice empirically falsifiable and therefore not “operationally meaningful.” What are these propositions? We may consider them in decreasing order of their generality: (1) the most fundamental—variety of resources, both natural and human. From this follows directly the division of labor, the market, etc.; (2) less important, that leisure is a consumer good. These are actually the only postulates needed. Two other postulates simply introduce limiting subdivisions into the analysis. Thus, economics can deductively elaborate from the Fundamental Axiom and Postulates (1) and (2) (actually, only Postulate 1 is necessary) an analysis of Crusoe economics, of barter, and of a monetary economy. All these elaborated laws are absolutely true. They are only applicable in concrete cases, however, where the particular limiting conditions apply. There is nothing, of course, remarkable about this; we can enunciate as a law that an apple, unsupported, will drop to the ground. But the law is applicable only in those cases where an apple is actually dropped. Thus, the economics of Crusoe, of barter, and of a monetary economy are applicable when these conditions obtain. It is the task of the historian, or “applied economist,” to decide which conditions apply in the specific situations to be analyzed. It is obvious that making these particular identifications is simplicity itself. When we analyze the economics of indirect exchange, therefore, we make the simple and obvious limiting condition (Postulate 3) that indirect exchanges are being made. It should be clear that by making this simple identification we are not “testing the theory”; we are simply choosing that theory which applies to the reality we wish to explain. The fourth—and by far the least fundamental—postulate for a theory of the market is the one which Professors Hutchison and

Method 107

Machlup consider crucial—that firms always aim at maximization of their money profits. As will become clearer when I treat the Fundamental Axiom below, this assumption is by no means a necessary part of economic theory. From our Axiom is derived this absolute truth: that every firm aims always at maximizing its psychic profit. This may or may not involve maximizing its money profit. Often it may not, and no praxeologist would deny this fact. When an entrepreneur deliberately accepts lower money profits in order to give a good job to a ne’er-do-well nephew, the praxeologist is not confounded. The entrepreneur simply has chosen to take a certain cut in monetary profit in order to satisfy his consumption-satisfaction of seeing his nephew well provided. The assumption that firms aim at maximizing their money profits is simply a convenience of analysis; it permits the elaboration of a framework of catallactics (economics of the market) which could not otherwise be developed. The praxeologist always has in mind the proviso that where this subsidiary postulate does not apply—as in the case of the ne’er-do-well—his deduced theories will not be applicable. He simply believes that enough entrepreneurs follow monetary aims enough of the time to make his theory highly useful in explaining the real market.5 We turn now to the Fundamental Axiom (the nub of praxeology): the existence of human action. From this absolutely true axiom can be spun almost the whole fabric of economic theory. Some of the immediate logical implications that flow from this premise are: the means-ends relationship, the time-structure of production, timepreference, the law of diminishing marginal utility, the law of optimum returns, etc. It is this crucial axiom that separates praxeology from the other methodological viewpoints—and it is this axiom that supplies the critical “a priori” element in economics. First, it must be emphasized that whatever role “rationality” may play in Professor Machlup’s theory, it plays no role whatever for

5

I do not mean to endorse here the recent strictures that have been made against the monetary-profit maximization assumption—most of which ignore long-run as opposed to short-run maximization. The curious idea that failure to pursue monetary goals is “irrational,” or refutes economics, is similar to the old notion that consumers were being irrational, or “uneconomic,” when they preferred to pay higher prices in stores nearer to them, or with a more congenial atmosphere.

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Professor Mises. Hutchison charges that Mises claims “all economic action was (or must be) rational.”6 This is flatly incorrect. Mises assumes nothing whatever about the rationality of human action (in fact, Mises does not use the concept at all). He assumes nothing about the wisdom of man’s ends or about the correctness of his means. He “assumes” only that men act, that is, that they have some ends, and use some means to try to attain them. This is Mises’s Fundamental Axiom, and it is this axiom that gives the whole praxeological structure of economic theory built upon it its absolute and apodictic certainty. Now the crucial question arises: how have we obtained the truth of this axiom? Is our knowledge a priori or empirical, “synthetic” or “analytic”? In a sense, such questions are a waste of time, because the all-important fact is that the axiom is self-evidently true, self-evident to a far greater and broader extent than the other postulates. For this Axiom is true for all human beings, everywhere, at any time, and could not even conceivably be violated. In short, we may conceive of a world where resources are not varied, but not of one where human beings exist but do not act. We have seen that the other postulates, while “empirical,” are so obvious and acceptable that they can hardly be called “falsifiable” in the usual empiricist sense. How much more is this true of the Axiom, which is not even conceivably falsifiable! Positivists of all shades boggle at self-evident propositions. And yet, what is the vaunted “evidence” of the empiricists but the bringing of a hitherto obscure proposition into evident view? But some propositions need only to be stated to become at once evident to the self, and the action axiom is just such a proposition. Whether we consider the Action Axiom “a priori” or “empirical” depends on our ultimate philosophical position. Professor Mises, in the neo-Kantian tradition, considers this axiom a law of thought and therefore a categorical truth a priori to all experience. My own epistemological position rests on Aristotle and St. Thomas rather than Kant, and hence I would interpret the proposition differently. I would consider the axiom a law of reality rather than a law of thought, and hence “empirical” rather than “a priori.” But it should be obvious that this type of “empiricism” is so out of step with modern empiricism that

6

Hutchison, “Professor Machlup on Verification in Economics,” p. 483.

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I may just as well continue to call it a priori for present purposes. For (1) it is a law of reality that is not conceivably falsifiable, and yet is empirically meaningful and true; (2) it rests on universal inner experience, and not simply on external experience, that is, its evidence is reflective rather than physical;7 and (3) it is clearly a priori to complex historical events.8 The epistemological pigeon-holing of self-evident propositions has always been a knotty problem. Thus, two such accomplished Thomists as Father Toohey and Father Copleston, while resting on the same philosophical position, differ on whether self-evident propositions should be classified as “a posteriori” or “a priori,” since they define the two categories differently.9 From the Fundamental Axiom is derived the truth that everyone tries always to maximize his utility. Contrary to Professor Hutchison, 7

See Professor Knight’s critique of Hutchison’s Significance and Basic Postulates of Economic Theory. Frank H. Knight, “What is Truth in Economics?” Journal of Political Economy (February 1940): 1–32. 8 Professor Hutchison may have had me in mind when he says that in recent years followers of Professor Mises try to defend him by saying he really meant “empirical” when saying “a priori.” Thus, see my “Praxeology, Reply to Mr. Schuller,” American Economic Review (December 1951): 943–44; included in this volume as chapter 7. What I meant is that Mises’s fundamental axiom may be called “a priori” or “empirical” according to one’s philosophical position, but is in any case a priori for the practical purposes of economic methodology. 9 Thus, Copleston calls self-evident principles “synthetic propositions a priori” (though not in the Kantian sense)—synthetic as conveying information about reality not contained logically in previous premises; and a priori as being necessary and universal. Toohey virtually obliterates the distinctions and terms self-evident propositions synthetic—a posteriori, because, while being necessary and universals, they are derived from experience. See F.C. Copleston, S.J., Aquinas (London: Penguin Books, 1955), pp. 28 and 19–41; John J.H. Toohey, S.J., Notes on Epistemology (Washington, D.C.: Georgetown University, 1952), pp. 46–55. All this raises the question of the usefulness of the whole “analytic-synthetic” dichotomy, despite the prominence implicitly given it in Hutchison’s “Significance and Basic Postulates of Economic Theory,” Journal of Political Economy 49 (1934). For a refreshing skepticism on its validity, and for a critique of its typical use to dispose of difficult-to-refute theories as either disguised definitions or debatable hypotheses, see Hao Wang, “Notes on the Analytic-Synthetic Distinction,” Theoria 21 (Parts 2–3, 1955): 158ff.

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this law is not a disguised definition—that they maximize what they maximize. It is true that utility has no concrete content, because economics is concerned not with the content of a man’s ends, but with the fact that he has ends. And this fact, being deduced directly from the Action Axiom, is absolutely true.10 We come finally to Mises’s ultimate heresy in the eyes of Professor Hutchison: his alleged logical deduction of “wholesale political conclusions” from the axioms of economic science. Such a charge is completely fallacious, particularly if we realize that Professor Mises is an uncompromising champion of “Wertfreiheit” not only in economics, but also for all the sciences. Even a careful reading of Hutchison’s selected quotations from Mises will reveal no such illegitimate deductions.11 Indeed, Mises’s economics is unrivaled for its avoidance of unanalyzed ad hoc value judgments, slipped into the corpus of economic analysis. Dean Rappard has posed the question: how can Mises be at the same time a champion of “Wertfreiheit in economics and of laissezfaire” liberalism, a “dilemma” which leads Professor Hutchison to accuse Mises of making political deductions from economic theory?12 The following passages from Mises give the clue to this puzzle: Liberalism is a political doctrine. . . . As a political doctrine liberalism (in contrast to economic science) is not neutral with regard to values and ultimate ends sought by action. It assumes that all 10

See Hutchison, “Professor Machlup on Verification Economics,” p. 480. Alan Sweezy fell into the same error when he charged that Irving Fisher’s dictum: “each individual acts as he desires,” since not meant as a testable proposition in psychology, must reduce to the empty “each individual acts as he acts.” On the contrary, the dictum is deducible directly from the Action Axiom, and is therefore both empirically meaningful and apodictically true. See Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,” pp. 225–28. 11 Thus: “Liberalism starts from the pure sciences of political economy and sociology which within their systems make no valuations and say nothing about what ought to be or what is good or bad, but only ascertain what is and how it is.” Quoted by Hutchison, “Professor Machlup on Verification Economics,” p. 483n. 12 William E. Rappard, “On Reading von Mises,” in On Freedom and Free Enterprise, M. Sennholz, ed., pp. 17–33.

Method 111 men or at least the majority of people are intent upon attaining certain goals. It gives them information about the means suitable to the realization of their plans. The champions of liberal doctrines are fully aware of the fact that their teachings are valid only for people who are committed to their valuational principles. While praxeology, and therefore economics too, uses the terms happiness and removal of uneasiness in a purely formal sense, liberalism attaches to them a concrete meaning. It presupposes that people prefer life to death, health to sickness . . . abundance to poverty. It teaches men how to act in accordance with these valuations.13

Economic science, in short, establishes existential laws, of the type: if A, then B. Mises demonstrates that this science asserts that laissez-faire policy leads to peace and higher standards of living for all, while statism leads to conflict and lower living standards. Then, Mises as a citizen chooses laissez-faire liberalism because he is interested in achieving these ends. The only sense in which Mises considers liberalism as “scientific” is to the extent that people unite on the goal of abundance and mutual benefit. Perhaps Mises is overly sanguine in judging the extent of such unity, but he never links the valuational and the scientific: when he says that a price control is “bad” he means bad not from his point of view as an economist, but from the point of view of those in society who desire abundance. Those who choose contrasting goals—who favor price controls, for example, as a route to bureaucratic power over their fellow men, or who, through envy, judge social equality as more worthwhile than general abundance or liberty—would certainly not accept liberalism, and Mises would certainly never say that economic science proves them wrong. He never goes beyond saying that economics furnishes men with the knowledge of the consequences of various political actions; and that it is the citizen’s province, knowing these consequences, to choose his political course.

13

Mises, Human Action, pp. 153–54; also see pp. 879–81.

7 Praxeology: Reply to Schuller

R

ather than prolong my discussion with Mr. Schuller1 unnecessarily by engaging further in a point-by-point refutation, I think it important to clarify the nature of praxeology and its applicability to historical events.

The fundamental praxeological axiom is that individual human beings act. Praxeology reveals the implications of the concept of “action.” Action results from the fact that the individual “actor” believes that there are other states of being preferable to the one in which he is at present, and from his belief that he may take certain steps which will bring him to a more satisfactory state. Given these preferences and “technological” ideas, the individual acts upon them in order to arrive at a more satisfactory state. The preferred state which the actor expects to attain is his “end”; the steps by which the actor attempts to attain his goal are the “means.”2 It is this praxeological concept of action that distinguishes the observed movements of men from those of inorganic matter.3

Originally appeared as “Praxeology: Reply to Mr. Schuller,” in American Economic Review (December 1951). 1 American Economic Review XL, no. 3 (June 1950): 418–22; XLI, no. 1 (March 1951): 181–90. 2 Although he did not use the term, Professor Talcott Parsons engaged in profound praxeological analysis in his Structure of Social Action (Glencoe, Ill.: The Free Press, 1949). Cf., esp. chap. 2, pp. 44–50. 3 The difficult case of animal behavior, ranging from the lower organisms to the higher primates, cannot be discussed here. 113

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This axiom of action is indisputably an important truth, and must form the basis for social theory. To deny it would be absurdity. How has our knowledge of the truth of this axiom been attained? In this way: an individual reflects, discovers the concept of action and its applicability to all human individuals, analyzes its components, and then sets it forth orally or by the written word. Each individual, upon reflecting on the axiom of action, must agree to its truth and to its importance. It is in this respect that the action axiom must be “universally recognized as true.”4 What name we apply to this method of obtaining knowledge is basically unimportant and involves irrelevant philosophical problems; thus, it may be called “introspective,” “empirical,” “a priori,” or “reflective.” The important consideration is that it is certainly a different type of “empiricism” from the study of historical events and is definitely “a priori” to those events, and that such a situation has no parallel in the physical sciences. The physical sciences are not in the fortunate position of positively knowing their fundamental axioms. On the other hand, the physical sciences are in a position to isolate causal factors in experiments. The physical sciences, then, have to arrive at their axioms by hypothesis and by experimental testing of conclusions deduced from these hypothecated axioms. In the “social sciences,” the fundamental axioms of praxeology are known from the beginning, so that substantive conclusions may be drawn by means of logical deduction. In human historical events, however, causal factors cannot be experimentally isolated, so that the historian must explain by the use of judgment which praxeological laws apply in the particular situation. Explanation of the roles of praxeological laws and historical judgment or “understanding” may be provided by the following example: If the supply of a medium of exchange increases; and if the demand for that medium remains the same; then, the purchasing power of that medium will decline. This is a praxeological law. How may an historian apply this law? He must first determine whether or

4

Schuller’s questioning of the validity of the praxeological axioms and procedures on the basis of the possible inability of the vast majority to grasp them is an old problem for the physical sciences. How can Einstein’s theory of relativity be true if the mass of the people cannot understand the demonstration of its validity? Whatever solution physical science has developed for this puzzle may be adopted by praxeology as well.

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not a decline in purchasing power (increase in prices) has taken place. This involves difficulties of an historical-statistical nature; it is not a problem for praxeology or for that elaborated division of it known as “economic theory” or “catallactics.” Once he has determined that a fall in purchasing power of the medium has taken place, he searches for an explanation by applying the praxeological-catallactic law. He investigates the historical situation to discover whether there has been an increase in the supply of the medium. If he finds a considerable increase in the supply, he is then in a position to assert three truths: A. It is an historical fact that the purchasing power of medium X has declined to such and such an extent. B. It is an historical fact that the supply of the medium X has increased to such and such an extent. C. The praxeological law just mentioned. It is therefore concluded: that a significant cause of the decline, A, was the increase in supply, B. If he finds no increase in supply, then he deduces that a fall in demand for the medium was the cause of the fall in purchasing power. Such is an example of what is involved in the work of historical explanation. The work of the “economic theorist,” or praxeologist, is to elaborate the laws (such as C) from the various axioms and according to the rules of logic. Clearly, neither Mises nor myself has ever cited “facts as if they provided support for his conclusions and for the axioms, postulates, and logical procedures.” I cited facts such as “dollar gaps” not as proof or test, but as illustrations of the workings of praxeological laws in (modern) historical situations. It is a praxeological law that if the government (or any other agency exercising the power of violence) intervenes in the market to establish a valuation of any commodity below what would be the market valuation, a shortage of the commodity develops. Gresham’s Law is a subdivision of this law applied to media of exchange, which, in turn, leads to the explanation of the “dollar gap.” The historian sees a shortage of dollars in relation to pounds develop in England, and, using praxeological laws, explains it as the consequence of governmental over-valuation of the

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pound in relation to the dollar. In no way does he test or “prove” the theory. How may praxeology be applied to forecasting, to the prediction of future historical events? The process is essentially that of the historian, except that the difficulties are greater. Thus, using the above example, the forecaster may see a considerable increase in the money supply take place. He asserts B; C he knows as a praxeological truth. In order to forecast the probable future course of purchasing power, he must make an estimate of the probable course of the demand for money in the period under consideration. If, on the basis of his judgment, he decides that the relative change in demand will be negligible, he is in a position to predict that the purchasing power of the money unit will decline in that period. With the help of praxeology, his judgment is the best he can offer, but it is still inexact, dependent on the correctness of his estimates—in this case, of the movement in the demand for money. If he wishes to make a quantitative estimate of the change in purchasing power, his estimate is still more inexact, for praxeology can be of no help in this attempt. If his prediction proves erroneous, it is not praxeology that has failed, but his judgment of the future behavior of the elements in the praxeological theorem. Praxeology is indispensable, but it does not provide omniscience. It furnishes laws in the form of: If X, and if Y remains unchanged, then Z. It is up to the historian, and his counterpart, the forecaster, to determine the specific cases in which the law is applicable. It should now be quite clear that there are no praxeological laws of historical development, and that neither Mises nor myself need “reconcile” any “dilemmas” in setting forth such a law. If there were, then the task of the historian would be far easier than it is. Historical events are complex results of numerous causal factors: praxeologic, psychologic, physical, chemical, biological, etc. The historian must determine which science and its laws apply, and, more difficult, the extent to which each causal factor operated in the events he is attempting to explain or predict. Historians will legitimately differ on the order of importance to be attributed to each factor. Thus, various factors, praxeologic-economic, military, moral, and psychologic might be enumerated as causes of the Bolshevik Revolution. But there is no exact, scientific way of deciding the precise extent of importance to be assigned to each factor.

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What of the relation between praxeology and economic theory per se? Economic theory as has been developed is a component part of praxeology. It is deduced from the apodictic axiom of action, and most of economic theory, including the laws and implications of Uncertainty, Time Preference, the Law of Returns, the Law of Utility, etc. can be deduced directly with no further assumptions. With the help of a very small number of subsidiary axioms which are rather more “empirical” in nature—such as “the disutility of labor”—the rest of economic theory can be deduced. The categories of praxeology may be outlined as follows: Praxeology—the general, formal theory of human action: A. The Theory of the Isolated Individual (Crusoe Economics) B. The Theory of Voluntary Interpersonal Exchange (Catallactics, or the Economics of the Market) 1. Barter 2. With Medium of Exchange a. On the Unhampered Market b. Effects of Violent Intervention with the Market c. Effects of Violent Abolition of the Market (Socialism) C. The Theory of War—Hostile Action D. The Theory of Games (e.g., Von Neumann and Morgenstern) E. Unknown Clearly, A and B—Economics—is the only fully elaborated part of praxeology. The others are largely unexplored areas. A concluding word on all the bother about democracy, dictatorship, and government. Clearly, the praxeologist qua praxeologist cannot advocate any course of action. As a citizen, however, he may, along with other citizens, try to decide on the proper course of social policy, and, in making that decision, he will be likely to use the aid of praxeology and call attention to its usefulness. For socio-political problems, praxeology presents the citizen with one great lesson, i.e., that the use of violence for purposes of plunder injures not only the victim (which is self-evident) but, in the long run, the plunderer also. The goal of the good citizen, then, is to try to eliminate, or at

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least minimize, violent plunder in the society.5 The problem of how to arrive at this goal is still unsolved, as a glance at the state of the world today will make dramatically clear. The great problem is how to convince or persuade the would-be plunderer to consult his longrun rather than what he might interpret as his short-run interests. The traditional laissez-faire solution was to establish a government that would have an effective monopoly on the means of violence, and would use these means solely to prevent and punish attempts at violence within the society. This largely (although not completely) ended the problem of sporadic social violence, but created a new problem: Quis custodes custodiet? Who will guard the state itself from using its effective monopoly of violence for plunder? The most ambitious attempt to solve this problem was the “Jeffersonian” one—to establish a government that would be tightly and securely ringed with definite constitutional restrictions to confine it to its “antiinvasive” function, to instill into the people a spirit of perpetual vigilant distrust of the government and particularly the appointed bureaucracy, and to keep the government small and local in order to permit direct popular control and vigilance. In the light of the history of the past century, it is possible that this method is impracticable, and that some other means may have to be found.

Finally, may I state that though I share Schuller’s hope that my interpretation of Human Action agrees with that of Mises, there is no warrant for any assumption to that effect.

5

This is aside from any moral considerations which might also lead the citizen to the goal of eliminating or minimizing the use of violence.

8 The Hermeneutical Invasion of Philosophy and Economics

I

n recent years, economists have invaded other intellectual disciplines and, in the dubious name of “science,” have employed staggeringly oversimplified assumptions in order to make sweeping and provocative conclusions about fields they know very little about. This is a modern form of “economic imperialism” in the realm of the intellect. Almost always, the bias of this economic imperialism has been quantitative and implicitly Benthamite, in which poetry and pushpin are reduced to a single-level, and which amply justifies the gibe of Oscar Wilde about cynics, that they (economists) know the price of everything and the value of nothing. The results of this economic imperialism have been particularly ludicrous in the fields of sex, the family, and education. So why then does the present author, not a Benthamite, now have the temerity to tackle a field as arcane, abstruse, metaphysical, and seemingly unrelated to economics as hermeneutics? Here my plea is the always legitimate one of self-defense. Discipline after discipline, from literature to political theory to philosophy to history, have been invaded by an arrogant band of hermeneuticians, and now even economics is under assault. Hence, this article is in the nature of a counterattack.

Originally appeared in the Review of Austrian Economics 3 (1989): 45–59. The article was adapted from a paper delivered at a Conference on Recent Trends in the Social Sciences held by the London Academic and Cultural Resources Fund and the Institute of Philosophy of the Jagellonian University of Krakow at Krakow, Poland, in April 1987. 119

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To begin, the dictionary definition of hermeneutics is the age-old discipline of interpreting the Bible. Until the 1920s or 1930s, indeed, hermeneutics was confined to theologians and departments of religion. But things changed with the advent of the murky German doctrines of Martin Heidegger, the founder of modern hermeneutics. With the death of Heidegger, the apostolic succession of head of the hermeneutical movement fell upon his student, Hans-Georg Gadamer, who still wears this mantle. The greatest success of the hermeneutical movement has been achieved in recent decades, beginning in the closely related movement of “deconstructionism” in literary criticism. Headed by the French theorists Michel Ricoeur, Paul Ricoeur, and Jacques Derrida, deconstructionism in the Western Hemisphere is led by the formidable English department at Yale University, from which it has spread to conquer most of the English-literature departments in the United States and Canada. The essential message of deconstructionism and hermeneutics can be variously summed up as nihilism, relativism, and solipsism. That is, either there is no objective truth or, if there is, we can never discover it. With each person being bound to his own subjective views, feelings, history, and so on, there is no method of discovering objective truth. In literature, the most elemental procedure of literary criticism (that is, trying to figure out what a given author meant to say) becomes impossible. Communication between writer and reader similarly becomes hopeless; furthermore, not only can no reader ever figure out what an author meant to say, but even the author does not know or understand what he himself meant to say, so fragmented, confused, and driven is each particular individual. So, since it is impossible to figure out what Shakespeare, Conrad, Plato, Aristotle, or Machiavelli meant, what becomes the point of either reading or writing literary or philosophical criticism? It is an interesting question, one that the deconstructionists and other hermeneuticians have of course not been able to answer. By their own avowed declaration, it is impossible for deconstructionists to understand literary texts or, for example, for Gadamer to understand Aristotle, whom he has nevertheless written upon at enormous length. As the English philosopher Jonathan Barnes has pointed out in his brilliant and witty critique of hermeneutics, Gadamer, not having anything to say about Aristotle or his works, is reduced to reporting his own subjective musings—a sort of lengthy account of “what

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Aristotle means to me.”1 Setting aside the hermeneutical problem of whether or not Gadamer can know even what Aristotle means to him, we push back the problem another notch. Namely, why in the world should anyone but Gadamer, except possibly his mother or wife, be in the least interested in the question of what Aristotle means to him? And even in the improbable event that we were interested in this earth-shattering question, we would in any case be prevented on hermeneutical principles from understanding Gadamer’s answer. Deconstruction and hermeneutics are clearly self-refuting on many levels. If we cannot understand the meaning of any texts, then why are we bothering with trying to understand or to take seriously the works or doctrines of authors who aggressively proclaim their own incomprehensibility?

INCOMPREHENSIBILITY Indeed, a crucial point about the hermeneuticians is that, for them, incomprehensibility is a self-fulfilling prophecy. As a colleague of mine ruefully told me: “I have read everything on hermeneutics I can lay my hands on, and I understand no more about it than I did when I first started.” Even in a profession—philosophy—not exactly famous for its sparkle or lucidity, one of the most remarkable qualities of the hermeneuticians is their horrendous and incomparably murky style. Stalactites and stalagmites of jargon words are piled upon each other in a veritable kitchen midden of stupefying and meaningless prose. Hermeneuticians seem to be incapable of writing a clear English, or indeed a clear German sentence. Critics of hermeneutics—such as Jonathan Barnes or David Gordon2—are understandably moved to satire, to stating or quoting hermeneutical tracts and then “translating” them into simple English, where invariably they are revealed as either banal or idiotic. 1

Jonathan Barnes, “A Kind of Integrity Review of Hans-Georg Gadamer,” Philosophical Apprenticeships (Cambridge, Mass.: MIT Press, 1985); Hans-Georg Gadamer, The Idea of the Good in Platonic-Aristotelian Philosophy (New Haven, Conn.: Yale University Press, 1986); London Review of Books (November 6, 1986): 12–13. 2 Barnes, “A Kind of Integrity;” and David Gordon, Hermeneutics versus Austrian Economics (Auburn, Ala.: Ludwig von Mises Institute, 1986).

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At first, I thought that these German hermeneuticians were simply ill-served by their translators into English. But my German friends assure me that Heidegger, Gadamer et al. are equally unintelligible in the original. Indeed, in a recently translated essay, Eric Voegelin, a philosopher not normally given to scintillating wit, was moved to ridicule Heidegger’s language. Referring to Heidegger’s master work, Sein und Zeit (Being and Time), Voegelin refers to the meaningless but insistent repetition of a veritable philosophical dictionary of phrases as the Anwesen des Anwesenden (“the presence of that which is present”), the Dingen des Dings (“the thinging of the thing”), the Nichten des Nichts (“the nothinging of the nothing”), and finally to the zeigenden Zeichen des Zeigzeugs (“the Pointing sign of the pointing implement”), all of which is designed, says Voegelin, to whip up the reader “into a reality-withdrawing state of linguistic delirium.”3 On Gadamer and the hermeneuticians, Jonathan Barnes writes: What, then, are the characteristic features of hermeneutical philosophy? Its enemies will wade in with adjectives like empty, vapid, dreamy, woolly, rhetorical. Gadamer himself tells an uncharacteristic story. At the end of a seminar on Cajetan, Heidegger once startled his devoted audience by posing the question: “What is being?” “We sat there staring and shaking our heads over the absurdity of the question.” Quite right too, say the enemies of hermeneutics: the question is perfectly absurd. But Gadamer has only a frail sense of the absurd, and his own readers ought to react as he once—but alas, only once—reacted to Heidegger.

Barnes goes on to say that Gadamer admits “that his thought has sometimes been less than pellucid.” He further quotes Gadamer as saying: Certainly I sometimes spoke over my pupils’ heads and put too many complications into my train of thought. Even earlier my friends had invented a new scientific measure, the “Gad,” which designated a settled measure of unnecessary complications.

Barnes adds that: 3

Eric Voegelin, “The German University and the Order of German Society: A Reconsideration of the Nazi Era,” Intercollegiate Review 20 (Spring/Summer, 1985): 11.

Method 123 Some may prefer to this self-congratulatory little story a remark which Gadamer makes of his younger self: “Despite my title of doctor, I was still a 22-year old boy who thought rather murky thinking, and who still did not really know what was going on.”

Barnes adds: “Did the boy ever grow up?”4 At this point we may cite Sir Karl Popper on G.W.F. Hegel, who counts along with Friedrich Schleiermacher as at least a great-grandfather of hermeneutics. What Popper lacks in satiric gifts he makes up in the vehemence of the scorn that he heaps upon the legion of his philosophical enemies, real or imagined. After denouncing Hegel’s “high-flown gibberish” and “imbecile fancies,” Popper quotes with obvious relish the attack on Hegel by his contemporary Schopenhauer as: a flat-headed, insipid, nauseating, illiterate charlatan, who reached the pinnacle of audacity in scribbling together and dishing up the craziest mystifying nonsense. This nonsense has been noisily proclaimed as immortal wisdom by mercenary followers and readily accepted as such by all fools, who thus joined into as perfect a chorus of admiration as had ever been heard before.5

Why this enormous acclaim and influence exerted by mystifying nonsense? In addition to noting its establishment in the interests of the Prussian state, Popper offers the following explanation: For some reason, philosophers have kept around themselves, even in our day, something of the atmosphere of the magician. Philosophy is considered a strange and abstruse kind of thing, dealing with those mysteries with which religion deals, but not in a way which can be “revealed unto babes” or to common people; it is considered to be too profound for that, and to be the religion and theology of the intellectuals, of the learned and wise.6

For a final citation on the incomprehensibility of hermeneutics, let us turn to the witty and devastating demolition by H.L. Mencken of Thorstein Veblen, another early protohermeneutician and an institutionalist opponent of the idea of economic law. In the course 4

Barnes, “A Kind of Integrity,” p. 13. Karl R. Popper, The Open Society and its Enemies, 4th ed. (New York: Harper and Row, 1962), vol. 2, p. 33. 6 Ibid., p. 30. 5

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of an essay featuring the “translation” into English of Veblen’s indecipherable prose, Mencken wrote that what was truly remarkable about Veblen’s ideas: was the astoundingly grandiose and rococo manner of their statement, the almost unbelievable tediousness and flatulence of the gifted headmaster’s prose, his unprecedented talent for saying nothing in an august and heroic manner. . . . Marx, I daresay, had said a good deal of it long before him, and what Marx overlooked had been said over and over again by his heirs and assigns. But Marx, at this business, labored under a technical handicap; he wrote in German, a language he actually understood. Prof. Veblen submitted himself to no such disadvantage. Though born, I believe, in these States, and resident here all his life, he achieved the effect, perhaps without employing the means, of thinking in some unearthly foreign language—say Swahili, Sumerian or Old Bulgarian—and then painfully clawing his thoughts into a copious and uncertain but book-learned English. The result was a style that affected the higher cerebral centers like a constant roll of subway expresses. The second result was a sort of bewildered numbness of the senses, as before some fabulous and unearthly marvel. And the third result, if I make no mistake, was the celebrity of the professor as a Great Thinker.7

COLLECTIVISM Marx, in fact, has been hailed by the hermeneuticians as one of the grandfathers of the movement. In 1985, for example, at the annual meeting of the Western Political Science Association in Las Vegas, virtually every paper offered in political theory was a hermeneutical one. A paradigmatic title would be “Political Life as a Text: Hermeneutics and Interpretation in Marx, Heidegger, Gadamer, and Foucault.” (Substitute freely such names as Ricoeur and Derrida, with an occasional bow to Habermas.) I do not believe it an accident that Karl Marx is considered one of the great hermeneuticians. This century has seen a series of devastating setbacks to Marxism, to its pretensions to “scientific truth,” and to its theoretical propositions as well as to its empirical assertions 7

H.L. Mencken, “Professor Veblen,” A Mencken Chrestomathy (New York: Alfred A. Knopf, 1949), p. 270.

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and predictions. If Marxism has been riddled both in theory and in practice, then what can Marxian cultists fall back on? It seems to me that hermeneutics fits very well into an era that we might, following a Marxian gambit about capitalism, call “late Marxism” or marxismin-decline. Marxism is not true and is not science, but so what? The hermeneuticians tell us that nothing is objectively true, and therefore that all views and propositions are subjective, relative to the whims and feelings of each individual. So why should Marxian yearnings not be equally as valid as anyone else’s? By the way of hermeneutics, these yearnings cannot be subject to refutation. And since there is no objective reality, and since reality is created by every man’s subjective interpretations, then all social problems reduce to personal and nonrational tastes. If, then, hermeneutical Marxists find capitalism ugly and unlovely, and they find socialism beautiful, why should they not attempt to put their personal esthetic preferences into action? If they feel that socialism is beautiful, what can stop them, especially since there are no laws of economics or truths of political philosophy to place obstacles in their path? It is no accident that, with the exception of a handful of contemporary economists—who will be treated further later—every single hermeneutician, past and present, has been an avowed collectivist, either of the left- or right-wing variety, and sometimes veering from one collectivism to another in accordance with the realities of power. Marx, Veblen, Schmoller, and the German Historical School are well known. As for the modern hermeneuticians, Heidegger found it all too easy to become an enthusiastic Nazi once the Nazi regime had been established. And Gadamer had no difficulty whatever adapting either to the Nazi regime (where he was known for having only a “loose sympathy” with the Third Reich) or to the Soviet occupation in East Germany (where, in his own words, he won “the special esteem of the Russian cultural authorities” for carrying out “their directives exactly, even against my own convictions”).8

“OPENNESS”

AND

KEEPING

THE

“CONVERSATION” GOING

Here we must note two variants of the common hermeneutical theme. On the one hand are the candid relativists and nihilists, who 8

Barnes, “A Kind of Integrity,” p. 12.

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assert, with an inconsistently absolutist fervor, that there is no truth. These hold with the notorious dictum of the epistemological anarchist Paul Feyerabend that “anything goes.” Anything, be it astronomy or astrology, is of equal validity or, rather, equal invalidity. The one possible virtue of the “anything goes” doctrine is that at least everyone can abandon the scientific or philosophic enterprise and go fishing or get drunk. This virtue, however, is rejected by the mainstream hermeneuticians, because it would put an end to their beloved and interminable “conversation.” In short, the mainstream hermeneuticians do not like the “anything goes” dictum because, instead of being epistemological anarchists, they are epistemological pests. They insist that even though it is impossible to arrive at objective truth or indeed even to understand other theorists or scientists, that we all still have a deep moral obligation to engage in an endless dialogue or, as they call it, “conversation” to try to arrive at some sort of fleeting quasi-truth. To the hermeneutician, truth is the shifting sands of subjective relativism, based on an ephemeral “consensus” of the subjective minds engaging in the endless conversation. But the worst thing is that the hermeneuticians assert that there is no objective way, whether by empirical observation or logical reasoning, to provide any criteria for such a consensus. Since there are no rational criteria for agreement, any consensus is necessarily arbitrary, based on God-knows-what personal whim, charisma of one or more of the conversationalists, or perhaps sheer power and intimidation. Since there is no criterion, the consensus is subject to instant and rapid change, depending on the arbitrary mind-set of the participants or, of course, a change in the people constituting the eternal conversation. A new group of hermeneutical economists, eager to find some criteria for consensus, have latched onto a Gestalt-like phrase of the late economist Fritz Machlup, perhaps taking his name very much in vain. They call this criterion the “Aha! principle,” meaning that the truth of a proposition is based on the exclamation of “Aha!” that the proposition may arouse in someone’s breast. As Don Lavoie and Jack High put it: “We know a good explanation when we see one, and when it induces us to say aha.”9 Somehow I do not find this criterion for truth, or even for consensus, very convincing. For example, many 9

Don Lavoie and Jack High, “Interpretation and the Costs of Formalism” (unpublished manuscript), p. 14.

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of us would find the prospect of being confronted with the option of engaging in endless and necessarily fruitless conversation with people unable to write a clear sentence or express a clear thought to be the moral equivalent of Sartre’s No Exit. Furthermore, I have a hunch that if someone came up with the proposition: “It would be a great thing to give these guys a dose of objective reality over the head” or at the very least to slam the door on their conversation, that this would elicit many more fervent “Ahas!” than the murky propositions of the hermeneuticians themselves. The prime moral duty proclaimed by the hermeneuticians is that we must at all times keep the conversation going. Since this duty is implicit, it is never openly defended, and so we fail to be instructed why it is our moral obligation to sustain a process that yields such puny and ephemeral results. In keeping with this alleged virtue, the hermeneuticians are fervently and dogmatically opposed to “dogmatism” and they proclaim the supreme importance of remaining endlessly “open” to everyone in the dialogue. Gadamer has proclaimed that the highest principle of hermeneutic philosophy is “holding oneself open in a conversation,” which means always recognizing “in advance, the possible correctness, even the superiority of the conversation partner’s position.” But, as Barnes points out, it is one thing to be modestly skeptical of one’s own position; it is quite another to refuse to dismiss any other position as false or mischievous. Barnes points out that the modest skeptic: recognizes that he himself may always be wrong. Gadamer’s “open” philosopher allows that his opponent may always be right. A modest skeptic may . . . indeed, in his modest way, regard the history of philosophy as a ceaseless campaign, marked by frequent defeats and occasional triumphs, against the ever powerful forces of fallacy and falsehood. . . . [W]ith some opponents he will not be “open”: he will be quite sure that they are wrong.10

The most important hermeneutical philosopher in the United States is Richard Rorty, who, in his celebrated book, Philosophy and the Mirror of Nature, devotes considerable space to the prime importance

10

Barnes, “A Kind of Integrity,” p. 13. For a critique of the triumph of the ideal of “openness,” see Allan Bloom, The Closing of the American Mind (New York: Simon and Schuster, 1987).

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of “keeping the conversation going.” In his sparkling critique of Rorty, Henry Veatch points out that, to the crucial question of how can we conversationalists ever know which ideals or “cultural posits” (in the Rortian language) are better than others, “Rorty could only answer that, of course, there can’t be any such thing as knowledge in regard to matters such as these.” So, if there is no knowledge and, hence, no objective criteria for arriving at positions, we must conclude, in the words of Veatch, that “although Aristotle may well have taught that ‘philosophy begins in wonder,’ . . . present-day philosophy can only end in a total conceptual or intellectual permissiveness.”11 In short, we end with the Feyerabendian “anything goes” or, to use the admiring phrase of Arthur Danto in his summary of Nietzsche, that “everything is possible.”12 Or, in a word, total “openness.” But if all things are open, and there are no criteria to guide conversationalists to any conclusions, how will such conclusions be made? It seems to me, following Veatch, that these decisions will be made by those with the superior Will-to-Power. And so it is not a coincidence that leading hermeneuticians have found themselves flexible and “open” in response to the stern demands of state power. After all, if Stalin, Hitler, or Pol Pot enters the “conversational” circle, they cannot be rejected out of hand, for they too may offer a superior way to consensus. If nothing is wrong and all things are open, what else can we expect? And who knows, even these rulers may decide, in a sardonic burst of Marcusean “repressive tolerance,” to keep some sort of Orwellian “conversation” going in the midst of a universal gulag. In all the blather about openness, I am reminded of a lecture delivered by Professor Marjorie Hope Nicholson at Columbia University in 1942. In a critique of the concept of the open mind, she warned: “Don’t let your mind be so open that everything going into it falls through.”

11

Henry Veatch, “Deconstruction in Philosophy: Has Rorty Made It the Denouement of Contemporary Analytical Philosophy?” Review of Metaphysics 39 (December 1985): 313–14, 316. 12 Arthur C. Danto, Nietzsche as Philosopher (New York: Columbia University Press, 1980), p. 12; cited in Veatch, “Deconstruction,” p. 312.

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There is another self-serving aspect to the hermeneutical demands for universal openness. For if nothing—no position, no doctrine—can be dismissed outright as false or mischievous or as blithering nonsense, then they too, our hermeneuticians, must be spared such rude dismissal. Keeping the conversation going at all costs means that these people must eternally be included. And that is perhaps the unkindest cut of all. If one reads the hermeneuticians, furthermore, it becomes all too clear that typically no one sentence follows from any other sentence. In other words, not only is the style abominable, but there is no reasoning in support of the conclusions. Since logic or reasoning are not considered valid by the hermeneuticians, this procedure is not surprising. Instead, for reasoning the hermeneuticians substitute dozens or scores of books, which are cited, very broadly, in virtually every paragraph. To support their statements, the hermeneuticians will list repeatedly every book that might possibly or remotely relate to the topic. In short, their only argument is from authority, an ancient philosophic fallacy which they seem to have triumphantly revived. For indeed, if there is no truth of reality, if for logic or experience, we must substitute a fleeting consensus of the subjective whims, feelings, or power plays of the various conversationalists, then what else is there but to muster as many conversationalists as possible as your supposed authorities?13 Armed with their special method, the hermeneuticians are therefore able to dismiss all attacks upon themselves, no matter how perceptive or penetrating, as “unscholarly.” This lofty rebuttal stems from their unique definition of scholarly, which for them means ponderous and obscurantist verbiage surrounded by a thicket of broad citations to largely irrelevant books and articles. So why then have not the distinguished critics of hermeneutics played the game on their opponents’ own turf and waded through the mountains and oceans of hogwash, patiently to cite and refute the hermeneuticians point by point and journal article by journal article? To ask that question is virtually to answer it. In fact, we have asked some of the critics this question, and they immediately responded in a heartfelt manner that they do not propose to dedicate 13

I am indebted for this point to Sheldon Richman of the Institute for Humane Studies at George Mason University.

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the rest of their lives to wading through this miasma of balderdash. Moreover, to do so, to play by the hermeneuticians’ own rules, would be to grant them too much honor. It would wrongfully imply that they are indeed worthy participants in our conversation. What they deserve instead is scorn and dismissal. Unfortunately, they do not often receive such treatment in a world in which all too many intellectuals seem to have lost their built-in ability to detect pretentious claptrap.14

HERMENEUTICAL ECONOMICS Economists like t