Response to Praxeology and Austrian Economics Critiques

The importance of the comprehension of Praxeology and the Austrian Method to Economics is given to us on the last page of Ludwig von Mises book Human Action:

“It rests with men whether they will make the proper use of the`rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.”

Any discussion about Praxeology and the Austrian Method to Economics will require an understanding of many concepts and ideas that are commonly misunderstood / misrepresented.  Hence below is a set of readings that will reveal many of fallacies that critics attempt to use in discussions about Praxeology and Austrian Economics.

For example: Praxeology / Austrian Economics is anti-empiricist.  Economics is value free. It isn’t anti-anything.

It is understandable why misinformation and confusion about Praxeology and Austrian Economics propagate our society, the amount of readings that are required to cover the vast realm of Praxeology, Economics, Ethics, is substantial. An estimate of approximately 3000 – 4000 pages must be comprehended to have a fairly good understanding of the above mentioned topics.  However, the goal of this blog post is to condense the literature to provide an grasp of the following topics that are the root of many unfounded attacks/critiques of Praxeology and Austrian Economics:

  • There are people that will attempt to argue against Praxeology and Austrian Economics on the grounds that it isn’t a science.  For some, only “hard” sciences that use empirical methods can be considered Science.  Typically these are critics do not realize the limitations of empirical methods to reveal knowledge. This is not an “attack” on empirical sciences, they are extremely useful for establishing formal laws such as physical laws of motion.
    • “There are no constant relationships valid for different periods in human history. The only “natural laws” (if we may use such an old-fashioned but perfectly legitimate label for such constant regularities) in human action are qualitative rather than quantitative.” Chapter 5 – Man, Economy, and State by Murray Rothbard
    • “Mathematical equations, then, are appropriate and useful where there are constant quantitative relations among unmotivated variables.” Chapter 5 – Man, Economy, and State by Murray Rothbard
    • Establishment of Praxeology as a Science must begins with an understanding of Kant’s position on Knowledge. In addition Han Herman Hoppe’s short paper of Economic Science and the Austrian Method is a great exposition of the Epistemology Praxeology and its best known sub-division Economics.
  • Many attempt to attack the action axiom as the basis for Praxeology and Austrian Method to Economics.   The starting point would be to read all of Man, Economy, and State Chapter 1: Fundamentals of Human Action including the Appendix.  After this, the Action Axiom validity should be evident, and therefore the Action Axiom should no longer be a basis of argumentation on the validity of Praxeology.
    • Rothbard’s Treatise on Economics: Man, Economy, and State is a large work that completely describes large areas of Economic Science and puts to rest many common ignorant attempts at refuting Praxeology and the Austrian Method to Economics.  However it stands at 1506 pages with its expanded version two which includes Power and Markets.  If someone genuinely wants to learn and understand Economics of the Real World, they must take the long and intense path through the 1506 pages of deductive reasoning.
  • The fallacy of any discussion related to Rational vs Irrational Action. Remember Economics is Value Free.  To claim another person is acting irrationally is a value judgement.  Imposing what you believe is the rational action in the given situation.
    • “Human action is necessarily always rational.” – Ludwig von Mises – Human Action
    • “The critic either tells us what he believes he would aim at if he were in the place of his fellow; or, in dictatorial arrogance blithely disposing of his fellow’s will and aspirations, declares what condition of this other man would better suit himself, the critic.” – Ludwig von Mises – Human Action

 

Immanuel Kant : Synthetic A Priori Knowledge

Please Watch: http://youtu.be/NepDL1h1BS4 which goes through a discussion on knowledge.  Kant showed that synthetic A Priori Knowledge exists.  It is different and separate from the type of knowledge that can be discovered via the Empirical Sciences.

The difference discussed above is revealed by Rothbard in the following statement: “There are no constant relationships valid for different periods in human history.” See below for context.

Man, Economy, and State by Murray Rothbard  (Free Download Full PDF)

Chapter 5: PRODUCTION: THE STRUCTURE

“Another danger in the use of this concept is that its purely static, essentially timeless, conditions are all too well suited for the use of mathematics. Mathematics rests on equations, which portray mutual relationships between two or more “functions.” Of themselves, of course, such mathematical procedures are unimportant, since they do not establish causal relationships. They are of the greatest importance in physics, for example, because that science deals with certain observed regularities of motion by particles of matter that we must regard as unmotivated. These particles move according to certain precisely observable, exact, quantitative laws. Mathematics is indispensable in formulating the laws among these variables and in formulating theoretical explanations for the observed phenomena. In human action, the situation is entirely different, if not diametrically opposite. Whereas in physics, causal relations can only be assumed hypothetically and later approximately verified by referring to precise observable regularities, in praxeology we know the causal force at work. This causal force is human action, motivated, purposeful behavior, directed at certain ends. The universal aspects of this behavior can be logically analyzed. We are not dealing with “functional,” quantitative relations among variables, but with human reason and will causing certain action, which is not “determinable” or reducible to outside forces. Furthermore, since the data of human action are always changing, there are no precise, quantitative relationships in human history. In physics, the quantitative relationships, or laws, are constant; they are considered to be valid for any point in human history, past, present, or future. In the field of human action, there are no such quantitative constants. There are no constant relationships valid for different periods in human history. The only “natural laws” (if we may use such an old-fashioned but perfectly legitimate label for such constant regularities) in human action are qualitative rather than quantitative. They are, for example, precisely the laws educed in praxeology and economics—the fact of action, the use of means to achieve ends, time preference, diminishing marginal utility, etc.

Mathematical equations, then, are appropriate and useful where there are constant quantitative relations among unmotivated variables. They are singularly inappropriate in praxeology and economics. In the latter fields, verbal, logical analysis of action and its processes through time is the appropriate method. It is not surprising that the main efforts of the “mathematical economists” have been directed toward describing the final equilibrium state by means of equations. For in this state, since activities merely repeat themselves, there seems to be more scope for describing conditions by means of functional equations. These equations, at best, however, can do no more than describe this equilibrium state.”

 

Man, Economy, and State by Murray Rothbard  (Free Download Full PDF)

Chapter 1: Fundamentals of Human Action – Appendix A: PRAXEOLOGY AND ECONOMICS

“Praxeology, therefore, differs from psychology or from the philosophy of ethics. Since all these disciplines deal with the subjective decisions of individual human minds, many observers have believed that they are fundamentally identical. This is not the case at all. Psychology and ethics deal with the content of human ends; they ask, why does the man choose such and such ends, or what ends should men value? Praxeology and economics deal with any given ends and with the formal implications of the fact that men have ends and employ means to attain them. Praxeology and economics are therefore disciplines separate and distinct from the others.”

 

“It is important to realize that economics does not propound any laws about the content of man’s ends.”

Similarity but more explicitly, as Mises put it (in Human Action): “Since nobody is in a position to substitute his own value judgments for those of the acting individual, it is vain to pass judgment on other people’s aims and volitions. No man is qualified to declare what would make another man happier or less discontented.”

Therefore Economics is Value Free. One must respect the subjective nature of individuals and their value scales.

 

“This chapter has been an exposition of part of praxeological analysis—the analysis that forms the body of economic theory. This analysis takes as its fundamental premise the existence of human action. Once it is demonstrated that human action is a necessary attribute of the existence of human beings, the rest of praxeology (and its subdivision, economic theory) consists of the elaboration of the logical implications of the concept of action. Economic analysis is of the form:

      1. Assert A—action axiom.
      2. If A, then B; if B, then C; if C, then D, etc.—by rules of logic.
      3. Therefore, we assert (the truth of) B, C, D, etc.”

Chapter 1: Fundamentals of Human Action – The Concept of Action

“It is this fundamental truth—this axiom of human action— that forms the key to our study. The entire realm of praxeology and its best developed subdivision, economics, is based on an analysis of the necessary logical implications of this concept. The fact that men act by virtue of their being human is indisputable and incontrovertible. To assume the contrary would be an absurdity. The contrary—the absence of motivated behavior— would apply only to plants and inorganic matter.”

 

If you do not follow or disagree with the above passage on ethical or arbitrary grounds please read the following book that digs much deeper into the EPISTEMOLOGY of Praxeology and  its best developed subdivision, economics.

ECONOMIC SCIENCE AND THE AUSTRIAN METHOD by Hans-Hermann Hoppe (Free Download Full PDF)

Content

Part 1: PRAXEOLOGY AND ECONOMIC SCIENCE

“Mises’s answer is that economics is the science of human action. In itself, this may not sound very controversial. But then Mises says of the science of economics:

‘Its statements and propositions are not derived from experience.  They are, like those of logic and mathematics, a priori. They are not subject to verification and falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts. They are a necessary requirement of any intellectual grasp of historical events. In order to emphasize the status of economics as a pure science, a science that has 11-10re in common with a discipline like applied logic than, for instance, with the empirical natural sciences, Mises proposes the term “praxeology” (the logic of action) for the branch of knowledge exemplified by economics.'”

Part 2:  ON PRAXEOLOGY AND THE PRAXEOLOGICAL FOUNDATION OF EPISTEMOLOGY

“Obviously this axiom is not derived from observation-there are only bodily movements to be observed but no such thing as actions-but stems instead from reflective understanding. And this understanding is indeed of a self-evident proposition. For its truth cannot be denied, since the denial would itself have to be categorized as an action. But is this not just plain trivial? And what has economics got to do with this? Of course, it had previously been recognized that economic concepts such as prices, costs, production, money credit, etc., had something to do with the fact that there were acting people. But that all of economics could be grounded in and reconstructed based on such a trivial proposition and how,  is certainly anything but clear. It is one of Mises’s greatest achievements to have shown precisely this: that there are insights implied in this psychologically speaking trivial axiom of action that were not themselves psychologically self-evident as well; and that it is these insights which provide the foundation for the theorems of economics as true a priori synthetic propositions.”

Rational vs Irrational Action: Mises’ Response in Human Action

(Free Download Full PDF)

Chapter 4: Rationality and Irrationality; Subjectivism and Objectivity of Praxeological Research

Human action is necessarily always rational. The term “rational action” is therefore pleonastic and must be rejected as such. When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaningless. The ultimate end of action is always the satisfaction of some desires of the acting man. Since nobody is in a position to substitute his own value judgments for those of the acting individual, it is vain to pass judgment on other people’s aims and volitions. No man is qualified to declare what would make another man happier or less discontented. The critic either tells us what he believes he would aim at if he were in the place of his fellow; or, in dictatorial arrogance blithely disposing of his fellow’s will and aspirations, declares what condition of this other man would better suit himself, the critic. It is usual to call an action irrational if it aims, at the expense of “material” and tangible advantages, at the attainment of “ideal” or “higher” satisfactions. In this sense people say, for instance—sometimes with approval, sometimes with disapproval—that a man who sacrifices life, health, or wealth to the attainment of “higher” goods—like fidelity to his religious, philosophical, and political convictions or the freedom and flowering of his nation—is motivated by irrational considerations. However, the striving after these higher ends is neither more nor less rational or irrational than that after other human ends. It is a mistake to assume that the desire to procure the bare necessities of life and health is more rational, natural, or justified than the striving after other goods or amenities. It is true that the appetite for food and warmth is common to men and other mammals and that as a rule a man who lacks food and shelter concentrates his efforts upon the satisfaction of these urgent needs and does not care much for other things. The impulse to live, to preserve one’s own life, and to take advantage of every opportunity of strengthening one’s vital forces is a primal feature of life, present in every living being. However, to yield to this impulse is not—for man—an inevitable necessity.”

Human Action by Ludwig von Mises Chapter 39: ECONOMICS AND THE ESSENTIAL PROBLEMS OF HUMAN EXISTENCE (Free Download Full PDF)

Section 3. Economic Cognition and Human Action

“Man’s freedom to choose and to act is restricted in a threefold way. There are first the physical laws to whose unfeeling absoluteness man must adjust his conduct if he wants to live. There are second the individual’s innate constitutional characteristics and dispositions and the operation of environmental factors; we know that they influence both the choice of the ends and that of the means, although our cognizance of the mode of their operation is rather vague. There is finally the regularity of phenomena with regard to the interconnectedness of means and ends, viz., the praxeological law as distinct from the physical and from the physiological law.
The elucidation and the categorial and formal examination of this third class of laws of the universe is the subject matter of praxeology and its hitherto best-developed branch, economics. The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.”

Austrian Economics Family Tree

Austrian Economics family-tree

 

  RECOMMENDED READINGS

  • Principles of Economics by Carl Menger
  • Human Action by Ludwig von Mises
  • Man, Economy, and State (with Power and Markets) by Rothbard
  • Economic Science and the Austrian Method by Hans-Hermann Hoppe
  • Capital and Interest by Bohm-Bawerk
  • The Theory of Money and Credit by Ludwig von Mises

Collage of Praxeology and Austrian Economics Books

 

Note: This is an evolving document