Economic Science and the Austrian Method_3

ECONOMIC SCIENCEAND THEAUSTRIAN METHOD

ECONOMIC SCIENCEAND THEAUSTRIAN METHODHANS..HERMANN HOPPELu~wigvon MisesInstituteAUBURN, ALABAMA

All rights reserved. Written permission must be secured from thepublisher to use or reproduce any part of this book, except for briefquotations in critical reviews or articles.Copyright © 1995 and 2007 by the Ludwig von Mises InstituteLudwig von Mises Institute, 518 West Magnolia Avenue, Auburn,Ala. 36832; www.mises.orgISBN 10 digit: 1~933550~11~2ISBN 13 digit: 978~ 1~933550~ 11~4

CONTENTSPREFACE 5PRAXEOLOGY AND ECONOMIC SCIENCE 7ON PRAXEOLOGY AND THE PRAXEOLOGICALFOUNDATION OF EPISTEMOLOGY 49RECOMMENDED READINGS 85INDEX 87ABOUT THE AUTHOR 893

PREFACEIt was a tragic day when economics, the queen of thesocial sciences, adopted the methods associated withthe natural sciences: empiricism and positivism. In thesweep of economic thought, this change occurred-notcoincidentally-about the same time that intellectuals andpoliticians came to believe in the efficacy of governmentplanning. Despite their failures, both doctrines remain godlessfaiths of our age.In this extraordinary essa~ Hans-Hermann Hoppe extendsthe argument ofLudwig von Mises that the methodsassociated with natural sciences cannot be successfully appropriatedfor economic theor~ Professor Hoppe then arguesfor the existence ofa priori knowledge, the validity ofpure theor~ the use of deductive logic, the implacability ofeconomic law, and the view that economics is but a part ofthe larger discipline of praxeology: the science of humanaction.If economists are to free themselves from the failedassumptions that they can precisely predict the future and,thus, that the state can plan the economy better than themarket, they will have to revisit more fundamental methodologicalerrors. When that happens, Professor Hoppe, theoutstanding praxeologist working toda~ will have played anindispensable role.-Llewellyn H. Rockwell, Jr.Ludwig von Mises InstituteThe Ludwig von Mises Institute • 5

PRAXEOLOGY ANDECONOMIC SCIENCEIt is well-known that Austrians disagree strongly withother schools of economic thought, such as theKeynesians, the Monetarists, the Public Choicers, Historicists,Institutionalists, and Marxists. 1 Disagreement ismost conspicuous, of course, when it comes to economicpolicy and economic policy proposals. At times there alsoexists an alliance between Austrians and, in particular, Chicagoitesand Public Choicers. Ludwig von Mises, Murray N.Rothbard, Milton Friedman, and James Buchanan, to cite afew names, are often united in their efforts to defend the freemarket economy against its "liberal" and socialist detractors.Nonetheless, as important as such occasional agreementsmay be for tactical or strategic reasons, they can only besuperficial, for they cover up some truly fundamental differencesbetween the Austrian school, as represented by Misesand Rothbard, and all the rest. The ultimate difference fromwhich all disagreements at the levels of economic theoryand economic policy stem-disagreements, for instance,IThe first two essays are based on two lectures delivered at the Ludwig vonMises Institute's '~dvanced Instructional Conference on Austrian Economics,"June 21-27, 1987. The third essay is reprinted from The Economics and Ethics ofPrivate Property (Kluwer Academic Publishers in 1993), pp. 141-64.The Ludwig von Mises Institute • 7

Economic Science and the Austrian Methodas regards the merit of the gold standard vs. fiat mone~free-banking vs. central banking, the welfare implications ofmarkets vs. state-action, capitalism vs. socialism, the theoryofinterest and the business cycle, etc.-concerns the answerto the very first question that any economist must raise:What is the subject matter ofeconomics, and what kind ofpropositions are economic theorems?Mises's answer is that economics is the science ofhumanaction. In itself, this may not sound very controversial. Butthen Mises says of the science of economics:Its statements and propositions are not derived from experience.They are, like those of logic and mathematics, apriori. They are not subject to verification and falsificationon the ground of experience and facts. They are bothlogically and temporally antecedent to any comprehensionof historical facts. They are a necessary requirement of anyintellectual grasp of historical events. 2In order to emphasize the status ofeconomics as a purescience, a science that has 11-10re in common with a disciplinelike applied logic than, for instance, with the empiricalnatural sciences, Mises proposes the term "praxeology" (thelogic ofaction) for the branch ofknowledge exemplified byeconomics. 3It is this assessment ofeconomics as an a priori science,a science whose propositions can be given a rigorous logicaljustification, which distinguishes Austrians, or more2Ludwig von Mises, Human Action (Chicago: Henry Regnery, 1966), p. 32.3Mises's methodological work is contained mainly in his EpistemologicalProblems ofEconomics (New York: New York University Press, 1981); Theory andHistory (Washington, D.C.: Ludwig von Mises Institute, 1985); The UltimateFoundation ofEconomic Science (Kansas City, Kans.: Sheed Andrews and McMeel,1978); Human Action, part I.8 • The Ludwig von Mises Institute

Hans-Hermann Hoppeprecisely Misesians, from all other current economicschools. All the others conceive ofeconomics as an empiricalscience, as a science like physics, which develops hypothesesthat require continual empirical testing. And they all regardas dogmatic and unscientific Mises's view that economictheorems-like the law of marginal utili~ or the law ofreturns, or the time-preference theory of interest and theAustrian business cycle theory-can be given definite proof,such that it can be shown to be plainly contradictory to denytheir validi~The view ofMark Blaug, highly representative ofmainstreammethodological thought, illustrates this almost universalopposition to Austrianism. Blaug says ofMises, "Hiswritings on the foundations of economic science are socranky and idiosyncratic that one can only wonder that theyhave been taken seriously by anyone.,,4Blaug does not provide one argument to substantiate hisoutrage. His chapter on Austrianism simply ends with thatstatement. Could it be that Blaug's and others' rejection ofMises's apriorism may have more to do with the fact thatthe demanding standards of argumentative rigor, whichan apriorist methodology implies, prove too much forthem?54Mark Blaug, The Methodology ofEconomics (Cambridge: Cambridge UniversityPress, 1980), p. 93; for a similar statement of outrage see Paul Samuelson,Collected Scientific Papers, vol. 3 (Cambridge, Mass.: Harvard University Press,1972), p. 761.5Another prominent critic of praxeology is Terence W Hutchison, TheSignificance and Basic Postulates ofEconomic Theory (London: Macmillan, 1938).Hutchison, like Blaug an adherent of the Popperian variant of empiricism, hassince become much less enthusiastic about the prospects ofadvancing economicsalong empiricist lines (see, for instance, his Knowledge and Ignorance in Economics[Chicago: University of Chicago Press, 1977]; and The Politics and Philosophy ofEconomics [New York: New York University Press, 1981]), yet he still sees noalternative to Popper's falsificationism. A position and development quite similarThe Ludwig von Mises Institute • 9

Economic Science and the Austrian MethodWhat led Mises to his characterization of economics asan a priori science? From the present day perspective itmight be surprising to hear that Mises did not see hisconception as out ofline with the mainstream view prevailingin the early twentieth centur~ Mises did not wish toprescribe what economists should be doing as opposed towhat they actually were doing. Rather, he saw his achievementas a philosopher of economics in systematizing, andin making explicit what economics really was, and how ithad implicitly been conceived by almost everyone callinghimself an economist.And this is indeed the case. In giving a systematicexplanation ofwhat was formerly only implicit and unspokenknowledge, Mises did introduce some conceptual andterminological distinctions that had previously been unclearand unfamiliar, at least to the English-speaking world. Buthis position on the status of economics was essentially infull agreement with the then-orthodox view on the matter.They did not employ the term "a priori," but such mainstreameconomists as Jean Baptiste Sa~ Nassau Senior, andJohn E. Cairnes, for instance, described economics quitesimilarl~Say writes: "A treatise on political economy will ... beconfined to the enunciation of a few general principles, notrequiring even the support ofproofs or illustrations; becauseto Hutchison's is to be found in H. Albert (see his earlier Marktsoziologie undEntscheidungslogik (Neuwied: 1967). For a critique ofthe empiricist position, seeHans-Hermann Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung. Unterschungenzur Grundlegung von Soziologie und Okonomie (Opladen: 1983); "IsResearch Based on Causal Scientific Principles Possible in the Social Sciences?"Ratio 25, no. 1 (1983); "In Defense ofExtreme Rationalism," Review ofAustrianEconomics 3 (1988); "On Praxeology and the Praxeological Foundations of Epistemologyand Ethics," in Llewellyn H. Rockwell, Jr., ed., The Meaning ofLudwigvon Mises (Auburn, Ala.: Ludwig von Mises Institute, 1989).10 • The Ludwig von Mises Institute

Hans-Hermann Hoppethese will be but the expression ofwhat every one will knO\\T,arranged in a form convenient for comprehending them, aswell as in their whole scope as in their relation to eachother." And "political economy ... whenever the principleswhich constitute its basis are the rigorous deductions ofundeniable general facts, rests upon an immovable foundation.,,6.According to Nassau Senior, economic "premises consistof a few general propositions, the result ofobservations, orconsciousness, and scarcely requiring proof, or even formalstatement, which almost every man, as soon as he hearsthem, admits as familiar to his thoughts, or at least asincluded in his previous knowledge; and his inferences arenearly as general, and, ifhe has reasoned correctl); as certainas his premises." And economists should be "aware that theScience depends more on reasoning than on observation,and that its principal difficulty consists not in the ascertainmentof its facts, but in the use of its terms.,,7And John E. Cairnes remarks that while "mankind hasno direct knowledge ofultimate physical principles" ... "theeconomist starts with a knowledge of ultimate causes." ..."The economist may thus be considered at the outset ofhisresearches as already in possession ofthose ultimate principIesgoverning the phenomena which form the subject ofhis study; the discovery of which in the case of physicalinvestigation constitutes for the inquirer his most arduoustask." "Conjecture [in economics] would manifestly be outof place, inasmuch as we possess in our consciousness and6Jean-Baptiste Say, Ireatise on Political Economy (New York: Augustus Kelley,[1880] 1964), p. xx, xxvi.7Nassau Senior, An Outline of the Science of Political Economy (New York:Augustus Kelley, [1836] 1965), pp. 2-3, 5.The Ludwig von Mises Institute • 11

Economic Science and the Austrian Methodin the testimony of our senses . . . direct and easy proofofthat which we desire to know: In Political Econom~ accordingl~hypothesis is never used as a help toward the discoveryofultimate causes and laws."sThe views ofMises's predecessors, Menger, Bohm-Bawerk,and Wieser, are the same: The~ too, describe economicsas a discipline whose propositions can-in contrast to thoseof the natural sciences-be given some ultimate justification.Again, however, they do so without using the terminologyemployed by Mises. 9And finall~ Mises's epistemological characterization ofeconomics was also considered quite orthodox-and certainlynot idiosyncratic, as Blaug would have it-after havingbeen explicitly formulated by Mises. Lionel Robbins'sbook The Nature and Significance ofEconomic Science, whichfirst appeared in 1932, is nothing but a somewhat watereddownversion of Mises's description of economics aspraxeolo~ Yet itwas respected by the economics professionas the guiding methodological star for almost twenty years.In fact, Robbins, in his Preface, explicitly singles outMises as the most important source of his own methodologicalposition. And Mises and Richard von Strigl-whose8John E. Cairnes, The Character and Logical Method ofPolitical Economy (NewYork: Augustus Kelley, 1965), p. 83,87, 89-90,95-96.9See Carl Menger, Untersuchungen uber die Methoden der Sozialwissenschaften(Leipzig: 1883); idem, Die Irrtumer des Historismus in der Deutschen Nationalokonomie(Wien: 1884); Eugen von Bohm-Bawerk, Schriften, E X. Weiss, ed.(Vienna: 1924); Friedrich von Wieser, Theme der gesellschaftlichen Wirtschaft(Tiibingen: 1914); idem, Gesammelte Abhandlungen (Tiibingen: 1929). ForMises's evaluation ofhis predecessors, see his Epistemological Problems ofEconomics,pp. 17-22. The term "a priori" in connection with economic theorems is also usedby Frank H. Knight; his methodological writings, however, lack systematic rigor.See his "What Is Truth in Economics," in Knight, On the History and Method ofEconomics (Chicago: University ofChicago Press, 1956); and his "The Limitationsof Scientific Method in Economics," in Knight, The Ethics ofCompetition (Chicago:University of Chicago Press, 1935).12 • The Ludwig von Mises Institute

Hans-Hennann Hoppeposition is essentially indistinguishable from Mises'slo-arecited approvingly in the text more often than anyone else.IIYet, illuminating as all this may be for an assessment ofthe present-day situation, it is only histor~ What then is therationale of the classical economists for regarding theirscience as different than the natural sciences? And what isbehind Mises's explicit reconstruction ofthis difference asone between an a priori science and an aposteriori science?It was the recognition that the process of validation-theprocess of discovering whether some propositionis true or not-is different in one field ofinquirythan in the other.Let us first look briefly at the natural sciences. How dowe know what the consequences will be if we subject somenature-given material to specified tests, let's sa~ if we mixit with another kind ofmaterial? Obviously we do not knowbefore we actually try it and observe what happens. We canmake a prediction, of course, but our prediction is only ahypothetical one, and observations are required to find outif we are right or wrong.Moreover, even if we have observed some definite outcome,let's say that mixing the two materials leads to anexplosion, can we then be sure that such an outcome willlORichard von Strigl, Die okonomischen Kategorien und die Or;ganisation derWirtschaft (Jena: 1923).11It may be worth mentioning that Robbins's methodological position, muchlike Friedrich A. Hayek's, became increasingly less Misesian over time due mainlyto the influence of Karl R. Popper, their colleague at the London School ofEconomics. See on this Lionel Robbins, An Autobiography ofan Economist (London:Macmillan, 1976); Hayek's disagreement with Mises's idea of praxeologyhas been most recently restated in his "Einleitung" to Ludwig von Mises'sErinnerungen (Stuttgart: 1978). Mises's own, entirely negative verdict on Poppercan be found in his The Ultimate Foundation ofEconomic Science, p. 70. In supportof this verdict see also Hans H. Hoppe Kritik der kausalwissenschaftlichen Sozialforschung(Opladen: Westdeutscher Verlag, 1983), pp. 48-49.The Ludwig von Mises Institute • 13

Economic Science and the Austrian Methodinvariably occur whenever we mix such materials? Again,the answer is no. Our predictions will still, and permanentl)',be hypothetical. It is possible that an explosion will onlyresult ifcertain other conditions-A,B, and C-are fulfilled.We can only find out whether or not this is the case and whatthese other conditions are by engaging in a never-endingtrial and error process. This enables us to improve ourknowledge progressively about the range of application forour original hypothetical prediction.Now let us turn to some typical economic propositions.Consider the validation process ofa proposition such as thefollowing: Whenever two people A and B engage in avoluntary exchange, they must both expect to profit from it.And they must have reverse preference orders for the goodsand services'exchanged so that A values what he receivesfrom B more highly than what he gives to him, and B mustevaluate.the same things the other way around.Or consider this: Whenever an exchange is not voluntarybut coerced, one party profits at the expense of the other.Or the law of marginal utility: Whenever the supply ofa good increases by one additional unit, provided each unitis regarded as of equal serviceability by a person, the valueattached to this unit must decrease. For this additional unitcan only be employed as a means for the attainment of agoal that is considered less valuable than the least valuedgoal satisfied by a unit of such good if the supply were oneunit shorter.Or take the Ricardian law of association: Of two producers,ifA is more productive in the production of twotypes of goods than is B, they can still engage in a mutuallybeneficial division of labor. This is because overall physicalproductivity is higher ifA specializes in producing one good14 • The Ludwig von Mises Institute

Hans-Hermann Hoppewhich he can produce most efficientl~ rather than both Aand B producing both goods separately and autonomousl~Or as another example: Whenever minimum wage lawsare enforced that require wages to be higher than existingmarket wages, involuntary unemployment will result.Or as a final example: Whenever the quantity ofmoneyis increased while the demand for money to be held as cashreserve on hand is unchanged, the purchasing power ofmoney will fall.Considering such propositions, is the validation processinvolved in establishing them as true or false of the sametype as that involved in establishing a proposition in thenatural sciences? Are these propositions hypothetical in thesame sense as a proposition regarding the effects of mixingtwo types of natural materials? Do we have to test theseeconomic propositions continuously against observations·?And does it require a never-ending trial and error process inorder to find out the range of application for these propositionsand to gradually improve our knowledge, such as wehave seen to be the case in the natural sciences?It seems quite evident-except to most economists forthe last forty years-that the answer to these questions is aclear and unambiguous No. That A and B must expect toprofit and have reverse preference orders follows from ourunderstanding ofwhat an exchange is. And the same is thecase concerning the consequences ofa coerced exchange. Itis inconceivable that things could ever be different: It wasso a million years ago and it will be so a million years hence.And the range of application for these propositions too isclear once and for all: They are true whenever something isa voluntary exchange or a coerced exchange, and that is allthere is to it.The Ludwig von Mises Institute • 15

Economic Science and the Austrian MethodThere is no difference with respect to the other examplesgiven. That the marginal utility ofadditional units ofsupplyof homogeneous goods must fall follows from the incontestablestatement that every acting person always preferswhat satisfies him more over what satisfies him less. It issimply -absurd to think that continuous testing would berequired to establish such a proposition.The Ricardian law ofassociation, along with a once-andfor-alldelineation of its range of application, also logicallyfollows from the very existence of the situation described.IfA and B differ as described and accordingly there exists atechnological substitution ratio for the goods produced(one such rate for A and one for B), then if they engage ina division of labor as characterized by the law, the physicaloutput produced must be greater than it otherwise wouldbe. Any other conclusion is logically flawed.The same is true regarding the consequences of minimumwage laws or an increase in the quantity of mone~ Anincrease in unemployment and a decrease in the purchasingpower of money are consequences which are logically impliedin the very description ofthe initial condition as statedin the propositions at hand. As a matter offact, it is absurdto regard these predictions as hypothetical and to think thattheir validity could not be established independently ofobservations,i.e., other than by actually trying out minimum wagelaws or printing more money and observing what happens.To use an analogy; it is as ifone wanted to establish thetheorem of Pythagoras by actually measuring sides andangles of triangles. Just as anyone would have to commenton such an endeavor, mustn't we say that to think economicpropositions would have to be empirically tested is a sign ofoutright intellectual confusion?16 • The Ludwig von Mises Institute

Hans-Hermann HoppeBut Mises by no means merely notices this rather obviousdifference between economics and the empirical sciences.He makes us understand the nature ofthis differenceand explains how and why a unique discipline like economics,which teaches something about reality without requiringobservations, can possibly exist. It is this achievementof Mises's which can hardly be overrated.In order to better understand his explanation, we mustmake an excursion into the field of philosophy; or moreprecisely into the field of the philosophy of knowledge orepistemolog~In particular, we must examine the epistemologyofImmanuel Kant as developed most completely in hisCritique ofPure Reason. Mises's idea ofpraxeology is clearlyinfluenced by Kant. This is not to say that Mises is a plainand simple Kantian. As a matter of fact, as I will point outlater, Mises carries the Kantian epistemology beyond thepoint at which Kant himself left off. Mises improves theKantian philosophy in a way that to this very day has beencompletely ignored and unappreciated by orthodox Kantianphilosophers. Nonetheless, Mises takes from Kant his centralconceptual and terminological distinctions as well assome fundamental Kantian insights into the nature of humanknowledge. Thus we must turn to Kant.Kant, in the course ofhis critique ofclassical empiricism,in particular that of David Hume, developed the idea thatall our propositions can be classified in a two-fold way: Onthe one hand they are either analytic or synthetic, and onthe other they are either a priori or a posteriori. The meaningof these distinctions is, in short, the following. Propositionsare analytic whenever the means of formal logic aresufficient in order to find out whether they are true or not;otherwise propositions are synthetic ones. And propositionsare a posteriori whenever observations are necessary in orderThe Ludwig von Mises Institute • 17

Economic Science and the Austrian Methodto establish their truth or at least confirm them. Ifobservationsare not necessa~ then propositions are a priori.The characteristic mark of Kantian philosophy is theclaim that true a priori synthetic propositions exist-and itis because Mises subscribes to this claim that he can be calleda Kantian. Synthetic a priori propositions are those whosetruth-value can be definitely established, even though in orderto do so the means offormal logic are not sufficient (while,ofcourse, necessary) and observations are unnecessary:According to Kant, mathematics and geometry provideexamples of true a priori synthetic propositions. Yet he alsothinks that a proposition such as the general principle ofcausality-i.e., the statement that there are time-invariantlyoperating causes, and every event is embedded into a networkofsuch causes-is a true synthetic a priori proposition.I cannot go into great detail here to explain how Kantjustifies this vie",-12 A few remarks will have to suffice. First,how is the truth ofsuch propositions derived, ifformal logic isnot sufficient and observations are unnecessary? Kant's answeris that the truth follows from self-evident material axioms.What makes these axioms self-evident? Kant answers, itis not because they are evident in a psychological sense, inwhich case we would be immediately aware ofthem. On thecontrar~Kant insists, it is usually much more painstakingto discover such axioms than it is to discover some empiricaltruth such as that the leaves of trees are green. They areself-evident because one cannot deny their truth withoutself-contradiction; that is, in attempting to deny them onewould actuall~ implicitl~ admit their truth.12A brilliant interpretation and justification of Kant's a prioristic epistemologyis to be found in E Kambartel, Erfahrung und Struktur. Bausteine zu einer Kritikdes Empirismus und Formalismus (Frankfurt/M.: 1968), esp. chapter 3; see alsoHans-Hermann Hoppe, Handeln und Erkennen (Bern: 1976).18 • The Ludwig von Mises Institute

Hans-Hertnann HoppeHow do we find such axioms? Kant answers, by reflectingupon ourselves, by understanding ourselves as knowingsubjects. And this fact-that the truth of a priori syntheticpropositions derives ultimately from inner, reflectively producedexperience-also explains why such propositions canpossibly have the status of being understood as necessarilytrue. Observational experience can only reveal things as theyhappen to be; there is nothing in it that indicates why thingsmust be the way they are. Contrary to this, however, writesKant, our reason can understand such things as being necessarilythe way they are, "which it has itself producedaccording to its own design."13In all this Mises follows Kant. Yet, as I said earlier, Misesadds one more extremely important insight that Kant hadonly vaguely glimpsed. It has been a common quarrel withKantianism that this philosophy seemed to imply some sortof idealism. For if, as Kant sees it, true synthetic a prioripropositions are propositions about how our mind worksand must of necessity work, how can it be explained thatsuch mental categories fit reality? How can it be explained,for instance, that reality conforms to the principIeofcausality ifthis principle has to be understood as oneto which the operation of our mind must conform? Don'twe have to make the absurd idealistic assumption that thisis possible only because reality was actually created by themind? So that I am not misunderstood, I do not think thatsuch a charge against Kantianism is justified. 14 And yet,13Immanue1 Kant, Kritik der reinen Urnunft, in Kant, uerke, vol. 2, W Weischedel,ed. (Wiesbaden: 1956), p. 23.14See in particular E Kambartel's work cited in note 12; instructive is alsothe Kant interpretation given by the biologist-ethologist K. Lorenz, WJm ueltbilddes Urhaltensforschers (Munich: 1964); idem, Die Ruckseite des Spiegels. Ursuch einerNaturgeschichte menschlichen Erkennens (Munich: 1973). Among some followersThe Ludwig von Mises Institute • 19

Economic Science and the Austrian Methodthrough parts of his formulations Kant has no doubt giventhis charge some plausibility:Consider, for example, this programmatic statement ofhis: "So far it has been assumed that our knowledge had toconform· to observational reality"; instead it should be assumed"thatobservational reality conform to our knowledge."15Mises provides the solution to this challenge. It is true,as Kant says, that true synthetic a priori propositions aregrounded in self-evident axioms and that these axioms haveto be understood by reflection upon ourselves rather thanbeing in any meaningful sense "observable.') Yet we have togo one step further. We must recognize that such necessarytruths are not simply categories of our mind, but that ourmind is one of acting persons. Our mental categories haveto be understood as ultimately grounded in categories ofaction. And as soon as this is recognized, all idealisticsuggestions immediately disappear. Instead, an epistemologyclaiming the existence oftrue synthetic a priori propositionsbecomes a realistic epistemolog)T. Since it is understoodas ultimately grounded in categories of action, the gulfbetween the mental and the real, outside, physical world isbridged. As categories ofaction, they must be mental thingsas much as they are characteristics ofreality: For it is throughactions that the mind and reality make contact.of Austrianism, the Kant interpretation of Ayn Rand (see, for instance, herIntroduction to Objectivist Epistemology (New York: New American Library, 1979);or For the New Intellectual (New York: Random House, 1961) enjoys greatpopularity. Her interpretation, replete with sweeping denunciatory pronouncements,however, is characterized by a complete absence of any interpretivedocumentation whatsoever. See, on Rand's arrogant ignorance regarding Kant, B.Goldberg, '~yn Rand's 'For the New Intellectual'," New Individualist Review 1, no.3 (1961).20 • The Ludwig von Mises Institute

Hans-Hermann HoppeKant had hinted at this solution. He thought mathematics,for instance, had to be grounded in our knowledge ofthe meaning of repetition, of repetitive operations. And healso realized, if only somewhat vaguel~ that the principle ofcausality is implied in our understanding of what it is andmeans to act. 16Yet it is Mises who brings this insight to the foreground:Causality; he realizes, is a category of action. To act meansto interfere at some earlier point in time in order to producesome later result, and thus every actor must presuppose theexistence ofconstantly operating causes. Causality is a prerequisiteof acting, as Mises puts it.But Mises is not, as is Kant, interested in epistemologyas such. With his recognition ofaction as the bridge betweenthe mind and the outside reality; he has found a solution tothe Kantian problem of how true synthetic a priori propositionscan be possible. And he has offered some extremelyvaluable insights regarding the ultimate foundation ofothercentral epistemological propositions besides the principle ofcausality; such as the law ofcontradiction as the cornerstone oflogic. And he has therebyopened a path for future philosophicalresearch that, to my knowledge, has hardly been traveled.Yet Mises's subject matter is economics, and so I willhave to lay to rest the problem ofexplaining in more detail thecausality principle as an a priori true proposition.I 716For Kantian interpretations ofmathematics see H. Dingler, Philosophic der LogikundMathematik (Munich: 1931); Paul Lorenzen, Einfiihrung in die operative Logikund Mathematik (Frankfurt/M.: 1970); Ludwig Wittgenstein, Remarks on theFoundations ofMathematics (Cambridge, Mass.: M.Ll: Press, 1978); also Kambartel,Erfahrung und Struktur, pp. 118-22; for an unusually careful and cautiousinterpretation of Kantianism from the point ofview ofmodern physics, seeP. Mittelstaedt, Philosophische Probleme der modernen Physik (Mannheim: 1967).17For some farther reaching considerations on these matters, see Hoppe "InDefense ofExtreme Rationalism."The Ludwig von Mises Institute • 21

Economic Science and the Austrian MethodMises not only recognizes that epistemology indirectlyrests on our reflective knowledge of action and can therebyclaim to state something a priori true about reality but thateconomics does so too and does so in a much more directway; Economic propositions flow directly from our reflectivelygained knowledge of action; and the status of thesepropositions as a priori true statements about somethingreal is derived from our understanding ofwhat Mises terms"the axiom of action."This axiom, the proposition that humans act, fulfills therequirements precisely for a true synthetic a priori proposition.It cannot be denied that this proposition is true, since thedenial would have to be categorized as an action-and so thetruth of the statement literally cannot be undone. And theaxiom is also not derived from observation-there are onlybodily movements to be observed but no such things asactions-but stems instead from reflective understanding.Moreover, as something that has to be understood ratherthan observed, it is still knowledge about reality; This isbecause the conceptual distinctions involved in this understandingare nothing less than the categories employed inthe mind's interaction with the physical world by means ofits own physical bodr And the axiom of action in all itsimplications is certainly not self-evident in a psychologicalsense, although once made explicit it can be understood asan undeniably true proposition about something real andexistent. 18Certainl~ it is not psychologically evident nor is itobservable that with every action an actor pursues a goal;and that whatever the goal may be, the fact that it is pursued180n this and the following see Mises, Human Action, chapters IV,V.22 • The Ludwig von Mises Institute

Hans-Hennann Hoppeby an actor reveals that he places a relatively higher value onit than on any other goal of action he could conceive of atthe start of his action.It is neither evident nor observable that in order toachieve his most highly valued goal an action must interfereor decide not to interfere (which, of course, is also aninterference) at an earlier point in time to produce somelater result; nor that such interferences invariably imply theemployment of some scarce means (at least those of theactor's bod); its standing room and the time absorbed by theinterference).It is neither self-evident nor can it be observed that thesemeans must also have value for an actor-a value derivedfrom that of the goal-because the actor must regard theiremployment as necessary in order to effectively achieve thegoal; and that actions can only be performed sequentiall);always involving the making ofa choice, i.e., taking up thatone course of action which at some given point in timepromises the most highly valued result to the actor andexcluding at the same time the pursuit ofother, less highlyvalued goals.It is not automatically clear or observable that as aconsequence ofhaving to choose and give preference to onegoal over another-of not being able to realize all goalssimultaneously-each and every action implies the incurrenceofcosts. For example, forsaking the value attached tothe most highly valued alternative goal that cannot berealized or whose realization must be deferred because themeans necessary to effect it are bound up in the productionof another, even more highly valued goal.And last!); it is not plainly evident or observable that atits starting point every goal of action must be consideredThe Ludwig von Mises Institute • 23

Economic Science and the Austrian Methodworth more to the actor than its cost and capable ofyieldinga profit, i.e., a result whose value is ranked higher than thatof the foregone opportunities. And yet, every action is alsoinvariably threatened by the possibility of a loss if an actorfinds, in retrospect, that the result actually achieved-contraryto previous expectations-has a lower value than therelinquished alternative would have had.All of these categories-values, ends, means, choice,preference, cost, profit and loss, as well as time and causality-areimplied in the axiom ofaction. Yet, that one is ableto interpret observations in such categories requires that onealready knows what it means to act. No one who is not anactor could ever understand them. They are not"given," readyto be observed, but observational experience is cast in theseterms as it is construed by an actor. Nor is their reflectivereconstruction a simple, psychologically self-evident intellectualtask, as proved by a long line ofabortive attempts alongthe way to the just-outlined insights into the nature ofaction.It took painstaking intellectual effort to recognize explicitlywhat, once made explicit, everybody recognizesimmediately as true and can understand as true synthetic apriori statements, i.e., propositions that can be validatedindependently of observations and thus cannot possibly befalsified by any observation whatsoever.The attempt to disprove the action-axiom would itselfbe an action aimed at a goal, requiring means, excludingother courses ofaction, incurring costs, subjecting the actorto the possibility of achieving or not achieving the desiredgoal and so leading to a profit or a loss.And the very possession of such knowledge then cannever be disputed, and the validity of these concepts can24 • The Ludwig von Mises Institute

Hans-Hennann Hoppenever be falsified by any contingent experience, for disputingor falsifying anything would already have presupposedtheir very existence. As a matter offact, a situation in whichthese categories of action would cease to have a real existencecould itself never be observed, for making an observation,too, is an action.Mises's great insight was that economic reasoning hasits foundation in just this understanding ofaction; and thatthe status of economics as a sort of applied logic derivesfrom the status of the action-axiom as an a priori-truesynthetic proposition. The laws of exchange, the law ofdiminishing marginal utilit~ the Ricardian law ofassociation,the law of price controls, and the quantity theory ofmoney-all the examples of economic propositions whichI have mentioned-can be logically derived from this axiom.And this is why it strikes one as ridiculous to think ofsuch propositions as being ofthe same epistemological typeas those of the natural sciences. To think that they are, andaccordingly to require testing for their validation, is likesupposing that we had to engage in some fact-findingprocess without knowing the possible outcome in order toestablish the fact that one is indeed an actor. In a word:It is absurd.Praxeology says that all economic propositions whichclaim to be true must be shown to be deducible by meansof formal logic from the incontestably true material knowledgeregarding the meaning of action.Specificall~all economic reasoning consists of the following:(1) an understanding of the categories of action and themeaning of a change occurring in such things as values,preferences, knowledge, means, costs, etc;The Ludwig von Mises Institute • 25

Economic Science and the Austrian Method(2) a description ofa world in which the categories ofactionassume concrete meaning, where definite people are identifiedas actors with definite objects specified as their meansof action, with some definite goals identified as values anddefinite things specified as costs. Such description could beone ofa Robinson Crusoe world, or a world with more thanone actor in which interpersonal relationships are possible;of a world of barter exchange or of money and exchangesthat make use ofmoney as a common medium ofexchange;of a world of only land, labor, and time as factors ofproduction, or a world with capital products; of a worldwith perfectly divisible or indivisible, specific or unspecificfactors of production; or of a world with diverse socialinstitutions, treating diverse actions as aggression andthreatening them with physical punishment, etc; and(3) a logical deduction of the consequences which resultfrom the performance of some specified action within thisworld, or of the consequences which result for a specificactor if this situation is changed in a specified wa~Provided there is no flaw in the process of deduction,the conclusions that such reasoning yield must be valid apriori because their validity would ultimately go back tonothing but the indisputable axiom of action. If the situarionand the changes introduced into it are fictional orassumptional (a Robinson Crusoe world, or a world with onlyindivisible or only completely specific factors ofproduction),then the conclusions are, ofcourse, a priori true only ofsucha "possible world." If, on the other hand, the situation andchanges can be identified as real, perceived and conceptualizedas such by real actors, then the conclusions are apriori true propositions about the world as it really is. 1919See also Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung, chapter3.26 • The Ludwig von Mises Institute

Hans-Hennann H~peSuch is the idea of economics as praxeolog~ And suchthen is the ultimate disagreement that Austrians have withtheir colleagues: Their pronouncements cannot be deducedfrom the axiom of action or even stand in clear-cut contradictionto propositions that can be deduced from the axiomof action.And even if there is agreement on the identification offacts and the assessment ofcertain events as being related toeach other as causes and consequences, this agreement issuperficial. For such economists falsely believe their statementsto be empirically well-tested propositions when theyare, in fact, propositions that are true a priori.IINon-praxeological schools of thought mistakenlybelieve that relationships between certain eventsare well-established empirical laws when they arereally necessary and logical praxeological ones. And theythereby behave as ifthe statement "a ball cannot be red andnon-red aU· over at the same time" requires testing inEurope, America, Africa, Asia and Australia (of courserequiring a lot of funds in order to pay for such daringnonsensical research). Moreover, the non-praxeologists alsobelieve that relationships between certain events are well-establishedempirical laws (with predictive implications)when a priori reasoning can show them to be no morethan information regarding contingent historical connectionsbetween events, which does not provide us with anyknowledge whatsoever regarding the future course ofevents.The Ludwig von Mises Institute • 27

Economic Science and the Austrian MethodThis illustrates another fundamental confusion non­Austrian schools have: a confusion over the categoricaldifference between theory and history and the implicationthat this difference has for the problem of social and economicforecasting.I must again begin with a description ofempiricism, thephilosophy which thinks of economics and the social sciencesin general as following the same logic of research asthat, for instance, of physics. I will explain wh~ Accordingto empiricism-today's most widely held view of economics-thereis no categorical difference between theoreticaland historical research. And I will explain what this impliesfor the idea ofsocial forecasting. The very different Austrianview will then be developed out ofa critique and refutationof the empiricist position.Empiricism is characterized by the fact that it acceptstwo intimately related basic propositions. 2o The first andmost central one is: Knowledge regarding reali~ which is calledempirical knowledge, must be verifiable or at least falsifiable byobservational experience. Observational experience can onlylead to contingent knowledge (as opposed to necessaryknowledge), because it is always of such a kind that, inprinciple, itcould have been different than it actually was. Thismeans that no one can know in advance ofexperience-that20For various representative accounts of empiricism-united in their oppositionagainst any form ofapriorism-see R. Carnap, Der logische AuJbau der mit(Hamburg: 1966); idem, Iestability and Meaning (New Haven, Conn.: YaleUniversity Press, 1950); Alfred ]. Ayer, Logic, Truth, and Language (New York:Dover, 1952); Karl R. Popper, Logic ofScientific Discuvery (New York: Harper andRow, 1959); idem, Conjectures and Refutations (London: Routledge and KeganPaul, 1969); C. G. Hempel,AspectsofScientiftcExplanation (New York: Free Press,1970); for accounts which also give some attention to economics, see in particularErnest Nagel, The Structure of Science (New York: Harcourt, Brace and World,1961); Felix Kaufmann, Methodology of the Social Sciences (Atlantic Highlands,N.].: Humanities Press, 1944).28 • The Ludwig von Mises Institute

Hans-Hennann Hoppeis before actually having had some particular observationalexperience-if the consequence of some real event will beone way or another. If, on the other hand, knowledge is notverifiable or falsifiable by observational experience, then itis not knOWledge about anything real. It is simply knowledgeabout words, about the use of terms, about signs andtransformational rules for signs. That is to say; it is analyticalknowledge, but not empirical knowledge. And it is highlydoubtful, according to this vie~ that analytical knowledgeshould be regarded as knowledge at all.The second assumption of empiricism formulates theextension and application of the first assumption to problemsof causality; causal explanation, and prediction. Accordingto empiricism, to explain causally or predict a realphenomenon is to formulate a statement of either the type"if A, then B" or, should the variables allow quantitativemeasurement, "if an increase (decrease) in A, then an increase(decrease) in B."As a statement referring to reality (with A and B beingreal phenomena), its validity can never be established withcertainty; that is, by examining the proposition alone, or ofany other proposition from which the one in question couldbe logically deduced. The statement will always be andalways remain hypothetical, its veracity depending on theoutcome of future observational experiences which cannotbe known in advance. Should experience confirm a hypotheticalcausal explanation, this would not prove that thehypothesis was true. Should one observe an instance whereB indeed followedA as predicted, it verifies nothing. A andB are general, abstract terms, or in philosophical terminolog~universals, which refer to events and processes ofwhichthere are (or might be, in principle) an indefinite numberof instances. Later experiences could still possibly falsify it.The Ludwig von Mises Institute • 29

Economic Science and the Austrian MethodAnd if an experience falsified a hypothesis, this wouldnot be decisive either. For ifit was observed thatA was notfollowed by B, it would still be possible that the hypotheticallyrelated phenomena were causally linked. It could bethat some other circumstance or variable, heretofore neglectedanduncontrolled, had simply prevented the hypothesizedrelationship from actually being observed. At themost, falsification only proves that the particular hypothesisunder investigation was not completely correct as it stood.It needs some refinement, some specification of additionalvariables which have to be watched for and controlled sothat we might observe the hypothesized relationship between4andB. But, to be sure, a falsification would neverprove once and for all that a relationship between somegiven phenomena did not exist, just as a confirmation wouldnever definitively prove that it did exist. 21When we consider this position, we notice that it againimplies a denial of a priori knowledge that is at the sametime knowledge about anything real. Any proposition thatclaims to be a priori can, according to empiricism, be nomore than signs on paper that are related to each other bydefinition or by arbitrary stipulation, and is thus completelyvoid: it is without connection to the world of real thingswhatsoever. Such a system of signs only becomes an empiricallymeaningful theory once an empirical interpretationis given to its symbols. Yet as soon as such aninterpretation is given to its symbols, the theory is nolonger a priori true but rather becomes and remains foreverhypothetical.2IOn the relativistic and-on the level of politics-interventionist implicationsof empiricism, see Hans-Hermann Hoppe, "The Intellectual Cover forSocialism," The Free Market (February 1988).30 • The Ludwig von Mises Institute

Hans-Hermann HoppeMoreover, according to empiricism, we cannot knowwith certainty whether something is a possible cause ofsomething else. If we want to explain some phenomenon,our hypothesizing about possible causes is in no way constrainedby a priori considerations. Everything can havesome influence on anything. We must find out by experiencewhether it does or not; but then experience will never giveus a definite answer to this question either.The next point brings us to our central topic of thissection: the relationship between history and theor~ Wenotice that according to empiricism there is no principaldifference between historical and theoretical explanations.Every explanation is of the same type. In order to explain aphenomenon we hypothesize some other phenomenon as itscause and then see whether or not the hypothesized causeindeed preceded the effect in time. A distinction exists betweena historical and a theoretical explanation only insofar as ahistorical explanation refers to events that already happened,something that lies in the past, whereas a theoretical explanationwould be an explanation, or rather a prediction, of aneffect that has not yet occurred. Structurall); though, thereis no difference between such historical explanations andtheoretical predictions. There is, however, a pragmatic differencewhich explains why empiricists in particular stressthe importance of a theory's predictive power and are notcontent with testing it only vis-It-vis historical data. 22 Thereason for this is quite evident to anyone who was everengaged in the foolish game ofdata analyses. Ifthe phenomenonto be explained has already occurred, it is easy as cake to22Por the emphasis placed on prediction by empiricist-positivists, see inparticular Milton Friedman, "The Methodology ofPositive Economics" in Friedman,Essays in Positive Economics (Chicago: University of Chicago Press, 1953).The Ludwig von Mises Institute • 31

Economic Science and the Austrian Methodfind all sorts of events that preceded it in time and couldpossibly be considered its cause. Moreover, ifwe don't wantto lengthen our list of possible causes by finding morepreceding variables, we can do the following (and in the ageof computers, it's even easier): We can take anyone of thepreceding variables and tryout different functional relationshipsbetween it and the variable to be explained-linear orcurvilinear ones, recursive or non-recursive functions, additiveor multiplicative relations, etc. Then one, two, three, wefind what we were looking for: a functional relationship thatfits the data. And you will find not just one but any amountof them that you could possibly desire.But which of all these preceding events, or of all thetypes of relationships, is the cause or the causally effectiverelation? There are no a priori considerations, according toempiricism, that could help us here. And that, then, is thereason why empiricists emphasize the importance of predictions.In order to find out which one of these manifoldhistorical explanations is indeed correct-or at least notfalse-we are asked to try them out by using them inpredicting events that have not yet occurred, see how goodthey are, and thereby weed out the wrong explanations.So much for empiricism and its ideas about theor~histor~ and forecasting. I will not go into a detailed analysisof the question whether or not this emphasis on predictivesuccess changes much, if anything at all, with respect to therather evident relativistic implications of empiricism. Justrecall that according to its very own doctrine, neither apredictive confirmation nor a predictive falsification wouldhelp us either in deciding whether a causal relationshipbetween a pair ofvariables did or did not exist. This shouldmake it appear rather doubtful that anything is gained bymaking prediction the cornerstone ofone's philosoph~32 • The Ludwig von Mises Institute

Hans-Hermann HoppeI would like to challenge the very starting point of theempiricists' philosoph~ There are several conclusive refutationsof empiricism. I will show the empiricist distinctionbetween empirical and analytical knowledge to be plainly falseand se1f-contradictor~2~That will then lead us to developingthe Austrian position on theor)) histof)) and forecasting.This is empiricism's central claim: Empirical knowledgemust be verifiable or falsifiable by experience; and analyticalknowledge, which is not so verifiable or falsifiable, thuscannot contain any empirical knowledge. Ifthis is true, thenit is fair to ask: What then is the status ofthis fundamentalstatement of empiricism? Evidently it must be either analyticalor empirical.Let us first assume it is analytical. According to theempiricist doctrine, however, an analytical proposition isnothing but scribbles on paper, hot air, entirely void of anymeaningful content. It says nothing about anything real. Andhence one would have to conclude that empiricism could noteven say and mean what it seems to say and mean. Yet if, onthe other hand, it says and means what we thought it did allalong, then it does inform us about something real. As amatter offact, it informs us about the fundamental structureof rea1i~ It says that there is nothing in reality that can beknown to be one way or another prior to future experienceswhich may confirm or disconfirm our hypothesis.And if this meaningful proposition is taken to be analytical,that is, as a statement that does not allow any falsificationand whose truth can be established by an analysis of230n rationalist critiques of empiricism, see Kambartel, Erfahrung undStruktur; Brand Blanshard, Reason and Analysis (LaSalle, Ill.: Open Court, 1964);A. Pap, Semantics and Necessary Truth (New Haven, Conn.: Yale University Press,1958); Martin Hollis and Edward Nell, RJJtional Economic Man (Cambridge:Cambridge University Press, 1975).The Ludwig von Mises Institute • 33

Economic Science and the Austrian Methodits terms alone, one has no less than a glaring contradictionat hand. Empiricism itself would prove to be nothing butself-defeating nonsense. 24So perhaps we should choose the other available optionand declare the fundamental empiricist distinction betweenempirical and analytical knowledge an empirical statement.But then the empiricist position would no longer carry anyweight whatsoever. For ifthis were done, it would have to beadmitted that the proposition-as an empiricalone-mightwellbe wrong and that one would be entitled to hear on the basis ofwhat criterion one would have to decide whether ornotit was.More decisivel~ as an empirical proposition, right or wrong,it could only state a historical fact, something like "allheretofore scrutinized propositions fall indeed into the twocategories analytical and empirical." The statement wouldbe entirely irrelevant for determining whether it would bepossible to produce propositions that are true a priori andare still empirical ones. Indeed, ifempiricism's central claimwere declared an empirical proposition, empiricism wouldcease altogether to be an epistemolog~ a logic of science,and would be no more than a completely arbitrary verbalconvention ofcalling certain arbitrary ways ofdealing withcertain statements certain arbitrary names. Empiricismwould be a position void of any justification.24Writes Mises in The Ultimate Foundation ofEconomic Science:The essence oflogical positivism is to deny the cognitive value ofa prioriknowledge by pointing out that all a priori propositions are merelyanalytic. They do not provide new information, but are merely verbalor tautological, asserting what has already been implied in the definitionsand premises. Only experience can lead to synthetic propositions.There is an obvious objection against this doctrine, viz., that thisproposition that there are no synthetic a priori propositions is in itself-as the present writer thinks, false-a synthetic a priori proposition,for it can manifestly not be established by experience. (p. 5)34 • The Ludwig von Mises Institute

Hans-Hermann HoppeWhat does this first step in our criticism of empiricismprove? It proves evidently that the empiricist idea of knowledgeis wrong, and it proves this by means of a meaningful apriori argument. And in doing this, it shows that the Kantianand Misesian idea of true a priori synthetic propositions iscorrect. More specifically; it proves that the relationshipbetween theory and history cannot be as depicted byempiricism. There must also be a realm oftheory-theorythat is empirically meaningful-which is categorically differentfrom the only idea of theory empiricism admits tohaving existence. There must also be a priori theories, and therelationship between theory and history then must be differentand more complicated than empiricism would have usbelieve. How different indeed will become apparentwhen I present another argument against empiricism,another a priori argument, and an a priori argument againstthe thesis implied in empiricism that the relation betweentheory and empirical research is the same in every field ofknowledge.However appropriate the empiricist ideas may be indealing with the natural sciences (and I think they areinappropriate even there, but I cannot go into this here),25it is impossible to think that the methods ofempiricism canbe applicable in the social sciences.Actions are the field of phenomena which constituteswhat we regard as the subject matter of the social sciences.Empiricism claims that actions can and must be250n this see, in addition to the works cited in note 23, in particular H.Dingler, Die Ergreifung des Wirklichen (Munich: 1955); idem, Aujbau der exaktenFundamentalwissenschaft (MUnich: 1964; Paul Lorenzen, Methodisches Denken(Frankfurt/M.: 1968); E Kambartel and J. Mittelstrass, eds., Zum normativenFundament der Wissenschaft (Frankfurt/M.: 1973); also my "In Defense ofExtremeRationalism." ,The Ludwig von Mises Institute • 35

Economic Science and the Austrian Methodexplained, just as any other phenomenon, by means ofcausalhypotheses which can be confirmed or falsified byexperience.26Now ifthis were the case, then empiricism would be firstforced to assume-contrary to its own doctrine that no apriori knowledge about anything real exists-that time-invariantlyoperating causes with respect to actions exist.One would not know a priori which particular eventmight be the cause ofany particular action. But empiricismwants us to relate different experiences regarding sequencesof events as either confirming or falsifying each other. Andif they falsify each other, then we are to respond with areformulation of the original hypothesis. Yet in order to doso, we must assume a constancy over time in the operationof causes as such-and to know that causes for actions doexist is, of course, knowledge about the reality of actions.Without such an assumption regarding the existence ofcauses as such, different experiences can never be related toeach other as confirming or falsifying one another. They aresimply unrelated, incommensurable observations. Here isone, there is another; they are the same or similar; or theyare different. Nothing else follows. 27In addition, there is yet another contradiction, andmaking it evident will immediately lead us to Mises's central261n addition to the literature cited in note 20 see, for instance, suchtypical empiricist products as Arthur Goldberger and Otis D. Duncan, eds.,Structural Equation Models in the Social Sciences (San Diego, Calif.: AcademicPress, 1973); H. B. Blalock, ed., Causal Inferences in Non-Experimental Research(Chapel Hill: University of North Carolina Press, 1964); Arthur L. Stinchcombe,Constructing Social Theories (New York: Harcourt, Brace & World,1968).27On this and the following, see Hoppe, Kritik der kausalwissenschaftlichenSozialforschung, chapter 2, and "Is Research Based on Causal Scientific PrinciplesPossible in the Social Sciences?"36 • The Ludwig von Mises Institute

Hans-Hermann Hoppeinsight that the relationship between theory and history inthe field of the social sciences is of an entirely differentnature than that in the natural sciences.What is this contradiction? If actions could indeed beconceived of as governed by time-invariantly operatingcauses, then it is certainly appropriate to ask: But what thenabout explaining the explainers? What about causally predictingtheir actions? They are, after all, the persons whocarryon the very process of creating hypotheses and ofverification and falsification.In order to assimilate confirming or falsifying experiences-toreplace old hypotheses with new ones-one mustassumedly be able to learn from experience. Every empiricistis, ofcourse, forced to admit this. Otherwise why engage inempirical research at all?But if one can learn from experience in as yet unknownways, then one admittedly cannot know at any given timewhat one will know at a later time and, accordingl~ howone will act on the basis of this knowledge. One can onlyreconstruct the causes ofone's actions after the event, as onecan explain one's knowledge only after one already possessesit. Indeed, no scientific advance could ever alter the fact thatone must regard one's knowledge and actions as unpredictableon the basis of constantly operating causes. One might holdthis conception of freedom to be an illusion. And one mightwell be correct from the point of view of a scientist withcognitive powers substantially superior to any human intelligence,or from the point of view of God. But we are notGod, and even if our freedom is illusory from His standpointand our actions follow a predictable path, for usthis is a necessary and unavoidable illusion. We cannotpredict in advance, on the basis of our previous states, thefuture states of our knowledge or the actions manifestingThe Ludwig von Mises Institute • 37

Economic Science and the Austrian Methodthat knowledge. We can only reconstruct them after theevent. 28Thus, the empiricist methodology is simply contradictorywhen applied to the field of knowledge and action-whichcontains knowledge as its necessary ingredient.The empiricist-minded social scientists who formulate predictionequations regarding social phenomena are simplydoing nonsense. Their activity ofengaging in an enterprisewhose outcome they must admit they do not yet kno~proves that what they pretend to do cannot be done. AsMises puts it and has emphasized repeatedly: There are noempirical causal constants in the field of human action. 29By means ofa priori reasoning then, one has establishedthis insight: Social history; as opposed to natural history;does not yield any knowledge that can be employed forpredictive purposes. Rather, social and economic historyrefers exclusively to the past. The outcome of research intohow and why people acted in the past has no systematicbearing on whether or not they will act the same way in thefuture. People can learn. It is absurd to assume that onecould predict in the present what one will know tomorrowand in what way tomorrow's knowledge will or will not bedifferent from today's.A person cannot predict today his demand for sugar inone year any more than Einstein could have predicted the28Interestingly, this argument was first advanced by Karl R. Popper in thePreface to his The Poverty ofHistoricism (London: Routledge & Kegan Paul, 1957).However, Popper entirely failed to notice that such an argument actually invalidateshis own idea ofa methodological monism (Einheitswissenschaft) and demonstratesthe inapplicability of his falsificationism in the field of human action andknowledge. See on this my Kritik der kausalwissenschaftlichen Sozialforschung, pp.44-49; K. O. Apel, Die Erkliiren: *rstehen Kontroverse in transzendental-pragmatischerSicht (Frankfurt/M.: 1979), pp. 44-46, footnote 19.29Mises, Human Action, pp. 55-56.38 • The Ludwig von Mises Institute

Hans-Hennann Hoppetheory of relativity before he had actually developed it. Aperson cannot know today what he will know about sugarone year from no~ And he cannot know all the goods thatwill be competing against sugar for his money in a year. Hecan make a guess, of course. But since it must be admittedthat future states of knowledge cannot be predicted on thebasis of constantly operating causes, a person cannot pretendto make a prediction of the same epistemological typeas, for instance, one regarding the future behavior of themoon, the weather, or the tides. Those are predictions thatcould legitimately make use of the assumption of time-invariantlyoperating causes. But a prediction about futuresugar demand would be an entirely different thing.Provided social and economic history can only come upwith reconstructive explanations and never with explanationsthat have any systematic predictive relevance, another extremelyimportant insight regarding the logic of empiricalsocial research follows. And this amounts to another decisivecriticism ofempiricism, at least regarding its claim of beingan appropriate methodology for social science research.Recall what I said earlier about why it is that empiricismso strongly emphasizes the predictive function of explanatorytheories. For every phenomenon to be explained thereare a multitude ofpreceding events and a multitude offunctionalrelationships with such preceding events by which thephenomenon in question could possibly be explained. Butwhich ofthese rival explanations is correct and which ones arenot? The empiricist answer was: Try to predict, and yoursuccess or failure in predicting future events will tell youwhich explanation is or is not correct. Evidentl~ this advicewon't do if there are no time-invariantly operating causeswith respect to actions. What then? Empiricism, ofcourse,cannot have an answer to this question.The Ludwig von Mises Institute • 39

Economic Science and the Austrian MethodYet even ifactions cannot be predicted in any scientific wa)',this does not imply that one reconstructive historical explanationis just as good as any other. It would be regarded asabsurd if someone explained the fact that I moved fromGermany to the United States by pointing out, for example,that the corn in Michigan, prior to my decision, was experiencinga growth spurt and that this had caused my decision.But why not, assuming here that the event regardingMichigan's corn indeed happened prior to my decision? Thereason is, ofcourse, that I will tell you that Michigan's cornhad no relevance for my decision. And insofar as anything isknown about me at all, it can be recognized that this is indeedthe case.But how can you recognize this? The answer is byunderstanding my motives and interests, my convictionsand aspirations, my normative orientations, and my concreteperceptions resulting in this action. How do we understandsomebody and, moreover, how do we verify that ourunderstanding is indeed correct? As regards the first part ofthe question-one understands somebody by engaging in apseudo-communication and interaction with him. I saypseudo because, evident1~ we cannot engage in an actualcommunication with Caesar in order to fmd out why hecrossed the Rubicon. But we could study his writings andcompare his convictions expressed therein with his actualdeeds; we could study the writings and actions of contemporariesand thereby try to understand Caesar's personali~his time, and his particular role and position within his. 30tIme.300n the logic ofhisto~ see Mises, Theory and History, chapter 14; The UltimateFoundation ofEconomic Science, pp. 45-51; Human Action, pp. 47-51, 59-64.40 • The Ludwig von Mises Institute

Hans-Hennann HoppeAs regards the second part ofthe question-the problemof verification ofhistorical explanations-one has to admitfrom the outset that there is no absolutely clear-cut criterionthat would allow one to decide which one of two rivalexplanations, both equally based on understanding, is definitelycorrect and which one is not. History is not an exactscience in the same sense as the natural sciences are exactsciences or in the very different sense in which economics isan exact science.Even if two historians agree in their description offactsand their assessment offactors ofinfluence for a given actionto be explained, they might still disagree on the weight thatshould be assigned to such factors in bringing about theaction. And there would be no way to decide the matter ina completely unambiguous wa~31Yet let me not be misunderstood here. There is nonethelesssome sort of truth-criterion for historical explanations.It is a criterion that does not eliminate all possible disagreementsamong historians, but that still excludes and disqualifiesa wide range of explanations. The criterion is that anytrue historical e~planation must be of such a kind that theactor whose actions are to be explained must, in principle, beable to verify the explanation and the explanatory factors asbeing those that contributed to his acting the way he did. 32 Thekey phrase here is: in principle. N aturall~ Caesar could notpossibly verify our explanation for his crossing the Rubicon.Moreovet; he might actually have strong reasons not to verify theexplanation even ifhe could, since such a verification mightconflict with some other objectives that he might have.31Mises, Human Action, pp. 57-58.320n the logic ofhistorical and sociological reconstruction and verification,see also Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung, pp. 33-38.The Ludwig von Mises Institute • 41

Economic Science and the Austrian MethodAlso, to say that any true explanation must be verifiableby the actor in question is not to say that every actor isalways best qualified to be his own explainer. It may be thatEinstein.can explain better than anyone else why and howhe came up with the theory of relativity when he did. Butthis might not be so. As a matter of fact, it may well bepossible that a historian ofscience may understand Einsteinand the influences leading to his discovery better than hehimself did or could. And this would be possible becausethe influencing factors or the rules that determined one'sactions might only be subconscious. 33 Or they might be soobvious that one would fail to notice them simply onaccount of this.The following analogy may be quite helpful in understandingthe curious fact that others might understand aperson better than the person himself. Take, for example, apublic speech. Ofcourse, to a large extent the person givingthe speech can probably give reasons for saying what he saysand formulate the influences that led him to see things theway he does. He can probably do so better than anyone else.And yet, in saying what he says, he follows rules habituallyand unconsciously that he could hardly or only with greatdifficulties make explicit. He also follows certain rules ofgrammar when he says what he says. But quite often hewould be completely unable to formulate these rules eventhough they clearly influence his actions. The historian whounderstands someone's actions better than the person himselfis quite analogous to the grammarian analyzing thesentence structure of the public speaker. Both reconstruct330n the logic ofpsychoanalytic explanation and verification, see A. MacIntyre,The Unconscious (London: Duckworth, 1958); ]iirgen Habermas, Erkenntnisundlnteresse (Frankfurt/M.: 1968), chapter 2; on the relevance ofpsychoanalysisalso Mises, Human Action, p. 12.42 • The Ludwig von Mises Institute

Hans-Hermann Hoppeand explicitly formulate the rules that are actually followed,but that could not, or only with extreme difficulties, beformulated by the speaker himself. 34The speaker may not be able to formulate all the rulesthat he follows and may need the professional historian orgrammarian to help him. But it is of great importance torealize that the truth criterion for the grammarian's explanationwould nonetheless be that the speaker would have tobe able-in principle-to verify the correctness ofthe explanationafter whatwas previously known implicitly was madeexplicit. In order for the grammarian's or historian's explanationsto be correct, the actor would need to be able torecognize these rules as being those whichindeed influencedhis actions. So much for the logic of historical research asnecessarily reconstructive research based on understanding.35The argument establishing the impossibility of causalpredictions in the field of human knowledge and actionsnow might have left the impression that if this is so, thenforecasting can be nothing but successful or unsuccessfulguessing. This impression, however, would be just as wrong340n the logic of linguistic explanations as involving the reconstruction ofrules which require confirmation through the "intuitive knowledge" of"competentspeakers," see Noam Chomsky, Aspects of the Theory ofSyntax (Cambridge:M.I:r. Press, 1965); also K. O. Ape!, 'l:Noam Chomskys Sprachtheorie und diePhilosophie der Gegenwart" in Ape!, 1ransformation der Philosophie, vol. 2 (Frankfurt/M.:1973).35For important critiques of the empiricist-positivist philosophy of theempirical social sciences, and explanations of social research as based on reconstructiveunderstanding, see also K. O. Ape!, Iransformation der Philosophie; idem,Die Erkliiren: "'Wrstehen Kontroverse in transzendental-pragmatischer Sicht; PeterWinch, The Idea ofa Social Science and Its Relation to Philosophy (Atlantic Highlands,N.J.: Humanities Press, 1970); idem, Ethics and Action (London: Routledgeand Kegan Paul, 1972); Jiirgen Habermas, Zur Logik der Sozialwissenschaften(Frankfurt/M.: 1970); G. H. von Wright, Explanation and Understanding (Ithaca,N.Y.: Cornell University Press, 1971).The Ludwig von Mises Institute • 43

Economic Science and the Austrian Methodas it would be wrong to think that one can predict humanaction in the same way as one can predict the growing stagesof apples. It is here where the unique Misesian insight intothe interplay of economic theory and history enters the. 36pIcture.In fact, the reason why the social and economic futurecannot be regarded as entirely and absolutely uncertainshould not be too hard to understand: The impossibility ofcausal predictions in the field ofaction was proven by meansof an a priori argument. And this argument incorporated apriori true knowledge about actions as such: that theycannot be conceived of as governed by time-invariantlyoperating causes.Thus, while economic forecasting will indeed always bea systematically unteachable art, it is at the same time truethat all economic forecasts must be thought of as beingconstrained by the existence of a priori knowledge aboutactions as such. 37Take, for example, the quantity theory of mone~ thepraxeological proposition that if you increase the quantity360n the relation between theory and history, see in particular Mises, HumanAction, pp. 51-59; and Epistemological Problems ofEconomics, chapters 2-3.37The former Austrian and neo-historicist-hermeneutician-nihilist LudwigLachmann, who repeats ad nauseam the unpredictability of future states ofknowledge (see his "From Mises to Shackle: An Essay on Austrian Economics andthe Kaleidic Society," Journal ofEconomic Literature 54 (1976); The Market as anEconomic Process (New York: Basil Blackwell, 1986), entirely misses recognizingthis latter point. In fact, his arguments are simply self-defeating. For evidently heclaims to know for certain the unknowability offuture knowledge and, by logicalextension, of actions. Yet then he does know something about future knowledgeand action. He must know something about knowledge and action as such. Andthis, precisely, is what praxeology claims to be: knowledge regarding actions assuch, and (as I have explained in my "On Praxeology and the PraxeologicalFoundations of Epistemology and Ethics," p. 49 below) knowledge about thestructure which any future knowledge must have by virtue of the fact that itinvariably must be knowledge of actors.44 • The Ludwig von Mises Institute

Hans-Hermann Hoppeof money and the demand for money stays constant, thenthe purchasing power of money will fall. Our a prioriknowledge about actions as such informs us that it is impossibleto predict scientifically whether or not the quantity ofmoney will be increased, decreased or left unchanged. Noris it possible to predict scientifically whether or not, regardlessof what happens to the quantity of mone~ the demand formoney to be held in cash balances will go up or down or staythe same. We cannot claim to be able to predict such thingsbecause we cannot predict future states of knowledge ofpeople. And yet these states evidently influence what happenswith respect to the quantity of money and the demand formone)!. Then, our theor~ our praxeological knowledge incorporatedin the quantity theor)!, has a rather limited usefulnessfor one's business ofpredicting the economic future.The theory would not allow one to predict future economicevents even if, sa); it is an established fact that thequantity of money had been expanded. One would still beunable to predict what would happen to the demand formonc)!. And though, ofcourse, concurrent events regardingthe demand for money do affect the shape ofthings to come(and cancel, increase, decrease, accelerate, or decelerate theeffects stemming from the source of an increased moneysupply), such concurrent changes cannot in principle bepredicted or experimentally held constant. It is an outrightabsurdity to conceive ofsubjective knowledge, whose everychange has an impact on actions, as predictable on the basisof antecedent variables and as capable of being held constant.The very experimenter who wanted to hold knowledgeconstant would, in fact, have to presuppose that hisknowledge, specifically his knowledge regarding the experiment'soutcome, could not be assumed to be constant overtime.The Ludwig von Mises Institute • 45

Economic Science and the Austrian MethodThe quantity theory of money then cannot render anyspecific economic event, certain or probable, on the basis ofa formula employing prediction constants. However, thetheory would nonetheless restrict the range of possiblycorrect predictions. And itwould do this not as an empiricaltheor~ but rather as a praxeological theor~ acting as alogical constraint on our prediction-making. 38 Predictionsthat are not in line with such knowledge (in our case: thequantity theory) are systematically flawed and making themleads to systematically increasing numbers of forecastingerrors,. This does not mean that someone who based hispredictions on correct praxeological reasoning would necessarilyhave to be a better predictor of future economicevents than someone who arrived at his predictions throughlogically flawed deliberations and chains of reasoning. Itmeans that in the long run the praxeologically enlightenedforecaster would average better than the unenlightenedones.It is possible to make the wrong prediction in spite ofthe fact that one has correctly identified the event "increasein the money supply" and in spite of one's praxeologicallycorrect reasoning that such an event is by logical necessityconnected with the event "drop in the purchasing power ofmone)!." For one might go wrong predicting what will occurto the event "demand for mone)!." One may have predicteda constant demand for mone~ but the demand might actuallyincrease. Thus the predicted inflation might not showup as expected. And on the other hand, it is equally possiblethat a person could make a correct forecast, Le., there willbe no drop in purchasing power, in spite ofthe fact that he380n the logic of social and economic forecasting, see also Hoppe, "InDefense ofExtreme Rationalism," sections 3, 4.46 • The Ludwig von Mises Institute

Hans-Hennann Hoppewas wrongly convinced that a rise in the quantity ofmoneyhad nothing to do with money's purchasing power. For itmay be that another concurrent change occurred (the demandfor money increased) which counteracted his wrongassessment of causes and consequences and accidentallyhappened to make his prediction right.However, and this brings me back to my point thatpraxeology logically constrains our predictions ofeconomicevents: What if we assume that all forecasters, includingthose with and without sound praxeological knowledge, areon the average equally well-equipped to anticipate otherconcurrent changes? What ifthey are on the average equallylucky guessers ofthe social and economic future? Evidentl)',we must conclude then that forecasters making predictionsin recognition ofand in accordance with praxeological lawslike the quantity theory of money will be more successfulthan that group offorecasters which is ignorant of praxeolog~It is impossible to build a prediction formula whichemploys the assumption of time-invariantly operatingcauses that would enable us to scientifically forecast changesin the demand for mone~ The demand for money is necessarilydependent on people's future states ofknowledge, andfuture knowledge is unpredictable. And thus praxeologicalknowledge has very limited predictive utili~39Yet ofall forecasters who correctly forecast that a changesuch as an increase in the demand for money will take placeand who equally correctly perceive that an increase in the39See also MurrayN. Rothbard,PowerandMarket (Kansas City, Kans.: SheedAndrews and McMeel, 1977), pp. 256-58, on the different function ofeconomictheorizing in a free market environment vs. an environment hampered by governmentintervention.The Ludwig von Mises Institute • 47

Economic Science and the Austrian Methodquantity of money has indeed happened, only those whorecognize the quantity theory ofmoney will make a correctprediction. And those whose convictions are at variancewith praxeology will necessarily go wrong.To understand the logic ofeconomic forecasting and thepractical function of praxeological reasoning, then, is toview the a priori theorems ofeconomics as acting as logicalconstraints on empirical predictions and as imposing logicallimits on what can or cannot happen in the future.* * * * *48 • The Ludwig von Mises Institute

ON PRAXEOLOGYAND THE PRAXEOLOGICALFOUNDATION OF EPISTEMOLOGYIAs have most great and innovative economists, Ludwigvon Mises intensively and repeatedly analyzedthe problem of the logical status of economicpropositions, i.e., how we come to know them and how wevalidate them. Indeed, Mises ranks foremost among illose whohold that such a concern is indispensable in order to achievesystematic progress in economics. For any misconceptionregarding the answer to such fundamental questions ofone'sintellectual enterprise would naturally have to lead to intellectualdisastet; i.e., to false economic doctrines. Accordingl~ threeof Mises's books are devoted entirely to clarifying the logicalfoundations ofeconomics: His early Epistemological Problems ofEconomics, published in German in 1933; his Theory andHistory of 1957; and his Ultimate Foundations of EconomicScience of 1962, Mises's last book, appearing when he wasalready well past his eightieth birthda~ And his works in thefield ofeconomics proper also invariably display the importancewhich Mises attached to the analysis ofepistemologicalThis essay is from Hans-Hermann Hoppe, The Economics and Ethics ofPripateProperty (Kluwer Academic Publishers in 1993), pp. 141-64 and it is reprintedhere with permission of Kluwer Academic Publishers.The Ludwig von Mises Institute • 49

Economic Science and the Austrian Methodproblems. Most characteristicall~Human Action, his masterpiece,deals in its first hundred-odd pages exclusively with suchproblems, and the other nearly 800 pages of the book arepermeated with epistemological considerations.Quite in line with the tradition of Mises, then, thefoundations ofeconomics are also the subject ofthis chapter.I have set myself a twofold goal. First, I want to explain thesolution which Mises advances regarding the problem oftheultimate foundation of economic science, i.e., his idea ofa pure theory ofaction, or praxeolog~as he himself termsit. And secondl~ I want to demonstrate why Mises'ssolution is much more than just an incontestable insightinto the nature of economics and economic propositions.It provides an insight that also enables us to understandthe foundation on which epistemology ultimately rests. Infact, as the title ofthe chapter suggests, I want to show thatit is praxeology which must be regarded as the very foundationof epistemolog); and hence that Mises, aside from hisgreat achievements as an economist, also contributed pathbreakinginsights regarding the justification of the entireenterprise of rationalist philosoph~40IILet me turn to Mises's solution. What is the logicalstatus of typical economic propositions such as the law ofmarginal utility (that whenever the supply ofa good whose40See on the following also my Kritik der kausalwissenschaftlichen Sozialforschung.Untersuchungen zur Grundlegung von Soziologie und Okonomie; idem, "IsResearch Based on Causal Scientific Principles Possible in the Social Sciences?,"chapter 7); idem, "In Defense of Extreme Rationalism."50 • The Ludwig von Mises Institute

Hans-Hermann Hoppeunits are regarded as of equal serviceability by a personincreases by one additional unit, the value attached to thisunit must decrease as it can only be employed as a meansfor the attainment of a goal that is considered less valuablethan the least valuable goal previously satisfied by a unit ofthis good); or of the quantity theory ofmoney (that wheneverthe quantity of money is increased while the demandfor money to be held in cash reserve on hand is unchanged,the purchasing power of money will fall)?In formulating his answer, Mises faced a double challenge.On the one hand, there was the answer offered bymodern empiricism. The Vienna Ludwig von Mises knewwas in fact one of the early centers of the empiricist movement:a movement which was then on the verge of establishingitself as the dominant academic philosophy of theWestern world for several decades, and which to this veryday shapes the image that an overwhelming majority ofeconomists have of their own discipline. 41Empiricism considers nature and the natural sciences asits model. According to empiricism, the aforementionedexamples of economic propositions have the same logical410n the Vienna Circle see ~ Kraft, Der Wiener Kreis (Vienna: Springer,1968); for empiricist-positivist interpretations of economics see such representativeworks as Terence W Hutchison, The Significance and Basic PostulatesofEconomic Theory [Hutchison, an adherent ofthe Popperian variant of empiricism,has since become much less enthusiastic about the prospects of a Popperizedeconomics-see, for instance, his Knowledge and Ignorance inEconomics-yet he still sees no alternative but to cling to Popper's falsificationismanyway.]; Milton Friedman, "The Methodology of Positive Economics," inidem, Essays in Positive Economics; Mark Blaug, The Methodology.ofEconomics; apositivist account by a participant in Mises's Privat Seminar in Vienna is EKaufmann, Methodology of the Social Sciences; the dominance of empiricism ineconomics is documented by the fact that there is probably not a singletextbook, which does not explicitly classify economics as-what else?-anempirical (a posteriori) science.The Ludwig von Mises Institute • 51

Economic Science and the Austrian Methodstatus as laws of nature: Like laws of nature they statehypothetical relationships between two or more events,essentially in the form of if-then statements. And likehypotheses of the natural sciences, the propositions ofeconomics require continual testing vis-a-vis experience. Aproposition regarding the relationship between economicevents can never be validated once and for all with certain~Instead, it is forever subject to the outcome of contingent,future experiences. Such experience might confirm the hypothesis.But this would not prove the hypothesis to be true,since the economic proposition would have used generalterms (in philosophical terminology: universals) in its descriptionof the related events, and thus would apply to anindefinite number of cases or instances, thereby alwaysleaving room for possibly falsifying future experiences. Alla confirmation would prove is that the hypothesis had notyet turned out wrong. On the other hand, the experiencemight falsify the hypothesis. This would surely prove thatsomething was wrong with the hypothesis as it stood. Butit would not prove that the hypothesized relationshipbetween the specified events could never be observed. Itwould merely show that considering and controlling inone's observations only what up to now had been actuallyaccounted for and controlled, the relationship had not yetshown up. It cannot be ruled out, however, that it mightshow up as soon as some other circumstances have beencontrolled.The attitude that this philosophy fuels and that hasindeed become characteristic of most contemporary economistsand their way of conducting their business is one ofskepticism: the motto being "nothing can be known withcertainty to be impossible in the realm of economic phenomena."Even more precisel~ since empiricism conceives52 • The Ludwig von Mises Institute

Hans-Hennann Hoppeof economic phenomena as objective data, extending inspace and subject to quantifiable measurement-in strictanalogy to the phenomena of the natural sciences-thepeculiar skepticism of the empiricist economist may bedescribed as that ofa social engineer who will not guaranteeanyth· Ing.42The other challenge came from the side ofthe historicistschool. Indeed, during Mises's life in Austria and Switzerland,the historicist philosophy was the prevailing ideologyof the German-speaking universities and their establishment.With the upsurge of empiricism this formerprominence has been reduced considerabl~ But overroughly the last decade historicism has regained momentumamong the Western world's academia. Today it is with useverywhere under the names of hermeneutics, rhetoric,deconstructionism, and epistemological anarchism. 43For historicism, and most conspicuously for its contemporaryversions, the model is not nature but a literary text.Economic phenomena, according to the historicist doctrine,are not objective magnitudes that can be measured. Instead,they are subjective expressions and interpretations unfoldingin history to be understood and interpreted by the economist420n the relativistic consequences ofempiricism-positivism see also Hoppe,A Theory ofSocialism and Capitalism (Boston: Kluwer Academic Publishers, 1989),chapter 6; idem, "The Intellectual Cover for Socialism."43See Ludwig von Mises, The Historical Setting of the Austrian School ofEconomics (Auburn, Ala.: Ludwig von Mises Institute, 1984); idem, Erinnerungen(Stuttgart: Gustav Fischer, 1978); idem, Theory and History, chapter 10; MurrayN. Rothbard, Ludwig von Mises: Schola1j Creat01; Hero (Auburn, Ala.: Ludwig vonMises Institute, 1988); for a critical survey ofhistoricist ideas see also Karl Popper,The Poverty ofHistoricism; for a representative ofthe older version of a historicistinterpretation of economics see Werner Sombart, Die drei Nationalokonomien(Munich: Duncker & Humblot, 1930); for the modern, hermeneutical twistDonald McCloskey, The Rhetoric ofEconomics (Madison: University ofWisconsinPress, 1985); Ludwig Lachmann, "From Mises to Shackle: An Essay on AustrianEconomics and the Kaleidic Society,"Journal ofEconomic Literature (1976).The Ludwig von Mises Institute • 53

Economic Science and the Austrian Methodjust as a literary text unfolds before and is interpreted by itsreader. As subjective creations, the sequence of their eventsfollows no objective law. Nothing in the literary text, andnothing in the sequence of historical expressions andinterpretations is governed by constant relations. Of course,certain literary texts actually exist, and so do certain sequencesofhistorical events. But this by no means implies that anythinghad to happen in the order it did. It simply occurred. In thesame wa~ however, as one can always invent different literarystories, history and the sequence of historical events,too, might have happened in an entirely differentwa~ Moreover,according to historicism, and particularly visible in itsmodern hermeneutical version, the formation ofthese alwayscontingently related human expressions and their interpretationsis also not constrained by any objective la'W In literaryproduction anything can be expressed or interpreted concerningeverything; and, along the same line, historical andeconomic events are whatever someone expresses or interpretsthem to be, and their description by the historian andeconomist is then whatever he expresses or interprets thesepast subjective events to have been.The attitude that historicist philosophy generates is oneof relativism. Its motto is "everything is possible." Unconstrainedby any objective la\\; for the historicist-hermeneuticianhistory and economics, along with literary criticism,are matters of esthetics. And accordingl~ his output takeson the form of disquisitions on what someone feels aboutwhat he feels was felt by somebody else-a literary formwhich we are only too familiar with, in particular in suchfields as sociology and political science. 44440n the extreme relativism of historicism-hermeneutics see Hoppe, "In DefenseofExtreme Rationalism"; Murray N. Rothbard, "The Hermeneutical InvasionofPhilosophy and Economics," Review ofAustrian Economics (1988); Henry Veatch,54 • The Ludwig von Mises Institute

Hans-Hermann HoppeI trust that one senses intuitively that something isseriously amiss in both the empiricist as well as the historicistphilosophies. Their epistemological accounts do noteven seem to fit their own self-chosen models: nature on theone hand and literary texts on the other. And in any case,regarding economic propositions such as the law of marginalutility or the quantity theory ofmoney their accountsseem to be simply wrong. The law of marginal utilitycertainly does not strike one as a hypothetical law subjectforever for its validation to confirming or disconfirmingexperiences popping up here or there. And to conceive ofthe phenomena talked about in the law as quantifiablemagnitudes seems to be nothing but ridiculous. Nor doesthe historicist interpretation seem to be any better. To thinkthat the relationship between the events referred to in thequantity theory ofmoney can be undone ifone only wishedto do so seems absurd. And the idea appears no less absurdthat concepts such as money; demand for money; and purchasingpower are formed without any objective constraintsand refer merely to whimsical subjective creations. Instead,contrary to the empiricist doctrine, both examples of economicpropositions appear to be logically true and to referto events which are subjective in nature. And contrary tohistoricism, it would seem that what they state, then, couldnot possibly be undone in all ofhistory and would containconceptual distinctions which, while referring to subjectiveevents, were nonetheless objectively constrained, and wouldincorporate universally valid knowledge."Deconstruction in Philosophy: Has Rorty Made it the Denouement ofContemporaryAnalytical Philosophy," Review ofMetaphysics (1985); Jonathan Barnes, '~Kind of Integrity," Austrian Economics Newsletter (Summer 1987); David Gordon,Hermeneutics vs. Austrian Economics (Auburn, Ala.: Ludwig von Mises Institute,Occasional Paper Series, 1987); for a brilliant critique of contemporary sociologysee St. Andreski, Social Science as Sorcery (New York: St. Martin's Press, 1973).The Ludwig von Mises Institute • 55

Economic Science and the Austrian MethodLike most of the better known economists before him,Mises shares these intuitions. 45 Yet in quest ofthe foundationofeconomics, Mises goes beyond intuition. He takes on thechallenge posed by empiricism and historicism in order toreconstruct systematically the basis on which these intuitionscan be understood as correct and justified. He therebydoes not want to help bring about a new discipline ofeconomics. But in explaining what formerly had only beengrasped intuitivel~ Mises goes far beyond what had everbeen done before. In reconstructing the rational foundationsof the economists' intuitions, he assures us of theproper path for any future development in economics andsafeguards us against systematic intellectual error.Empiricism and historicism, Mises notes at the outset ofhis reconstruction, are self-contradictory doctrines. 46 Theempiricist notion that all events, natural or economic, areonly hypothetically related is contradicted by the messageof this very basic empiricist proposition itself: For if thisproposition were regarded as itselfbeing merely hypotheticallytrue, i.e., a hypothetically true proposition regarding hypotheticallytrue propositions, it would not even qualify as anepistemological pronouncement. For it would then provideno justification whatsoever for the claim that economic45Regarding the epistemological views of such predecessors as J. B. Say;Nassau W. Senior, J. E. Cairnes, John Stuart Mill, Carl Menger, and Friedrich vonWieser see Ludwig von Mises, Epistemological Problems ofEconomics, pp. 17-23;also Murray N. Rothbard, "Praxeology: The Methodology of Austrian Economics,"in Edwin Dolan, ed., The Foundations ofModern Austrian Economics (KansasCity: Sheed and Ward, 1976).461n addition to Mises's works cited at the outset of this chapter and theliterature mentioned in note 40, see Murray N. Rothbard, Individualism and thePhilosophy ofthe Social Sciences (San Francisco: Cato Institute, 1979); for a splendidphilosophical critique of empiricist economics see Hollis and Nell, RationalEconomic Man; as particularly valuable general defenses of rationalism as againstempiricism and relativism-without reference to economics, however,-see Blanshard,Reason and Analysis; Kambartel, Erfahrung und Struktur.56 • The Ludwig von Mises Institute

Hans-Hermann Hoppepropositions are not, and cannot be, categoricall~ or a prioritrue, as our intuition informs us they are. If, however, thebasic empiricist premise were assumed to be categoricallytrue itself, i.e., if we assume that one could say somethinga priori true about the way events are related, then thiswould belie its very own thesis that empirical knowledgemust invariably be hypothetical knowledge, thus makingroom for a discipline such as economics claiming to producea priori valid empirical knowledge. Further, the empiricistthesis that economic phenomena must be conceived of asobservable and measurable magnitudes-analogous tothose ofthe natural sciences-is rendered inconclusive, too,on its own account: For, obviousl~ empiricism wants toprovide us with meaningful empirical knowledge when itinforms us that our economic concepts are grounded inobservations. And yet, the concepts of observation andmeasurement themselves, which empiricism must employ inclaiming what it does, are both obviously not derived fromobservational experience in the sense that concepts such ashens and eggs or apples and pears are. One cannot observesomeone making an observation or measurement. Rather,one must first understand what observations and measurementsare in order to then be able to interpret certainobservable phenomena as the making of an observation orthe taking of a measurement. Thus, contrary to its owndoctrine, empiricism is compelled to admit that there isempirical knowledge which is based on understanding-justas according to our intuitions economic propositions claimto be based on understanding-rather than on observations.4747For an elaborate defense of epistemological dualism see also Apel, 1Yansformationdcr Philosophic) 2 vals. and Habermas, Zur Logik der Sozialwissenschaften.The Ludwig van Mises Institute • 57

Economic Science and the Austrian MethodAnd regarding historicism, its self-contradictions are noless manifest. For if, as historicism claims, historical andeconomic events-which it conceives of as sequences ofsubjectively understood rather than observed events-arenot governed by any constant, time-invariant relations, thenthis very proposition also cannot claim to say anythingconstantly true about history and economics. Instead, itwould be a proposition with, so to speak, a fleeting truthvalue: it may be true now; ifwe wish it so, yet possibly falsea moment later, in case we do not, with no one ever knowinganything about whether we do or do not. Yet, if this werethe status of the basic historicist premise, it, too, wouldobviously not qualify as an epistemolog~ Historicismwould not have given us any reason why we should believeany of it. If, however, the basic proposition of historicismwere assumed to be invariandy true, then such a propositionabout the constant nature of historical and economic phenomenawould contradict its own doctrine denying any suchconstants. Furthermore, the historicist's-and even more soits modern heir, the hermeneutician's-claim that historicaland economic events are mere subjective creations, unconstrainedby any objective factors, is proven false by the verystatement making it. For evidentl~a historicist must assumethis very statement to be meaningful and true; he mustpresume to say something specific about something, ratherthan merely uttering meaningless sounds like abracadabra.Yet if this is the case, then, clearly; his statement must beassumed to be constrained by something outside the realmof arbitrary subjective creations. Of course, I can say whatthe historicist says in English, German, or Chinese, or inany other language I wish, in so far as historic and economicexpressions and interpretations may well be regarded asmere subjective creations. But whatever I say in whatever58 • The Ludwig von Mises Institute

Hans-Hennann Hoppelanguage I choose must be assumed to be constrained by someunderlying propositional meaning of my statement, which isthe same for any language, and exists completely independentofwhatever the peculiar linguistic form may be in which it isexpressed. And contrary to historicist belief, the existence ofsuch a constraint is not such that one could possibly disposeof it at will. Rather, it is objective in that we can understandit to be the logically necessary presupposition for sayinganything meaningful at all, as opposed to merely producingmeaningless sounds. The historicist could not claim to sayanything if it were not for the fact that his expressions andinterpretations are actually constrained by laws oflogic as thevery presupposition ofmeaningful statements as such. 48With such a refutation of empiricism and historicism,Mises notices, the claims of rationalist philosophy are successfullyreestablished, and the case is made for the possibilityof a priori true statements, as those ofeconomics seem to be.Indeed, Mises explicitly regards his own epistemological investigationsas the continuation ofthe work ofwestern rationalistphilosoph~ With Leibniz and Kant he stands oppositethe tradition of Locke and Hume. 49 He sides with Leibnizwhen he answers Locke's famous dictum "nothing is in theintellect that has not previously been in the senses" with hisequally famous one "except the intellect itself." And he recognizeshis task as a philosopher of economics as strictlyanalogous to that of Kant's as a philosopher of pure reason,i.e., of epistemologr Like Kant, Mises wants to demonstratethe existence oftrue a priori synthetic propositions, or propositionswhose truth values can be definitely established, even48See on this in particular Hoppe, "In Defense of Extreme Rationalism."49See Mises, The Ultimate Foundation ofEconomic Science, p. 12.The Ludwig von Mises Institute • 59

Economic Science and the Austrian Methodthough in order to do so the means of formal logic areinsufficient and observations are unnecessar~My criticism ofempiricism and historicism has provedthe general rationalist claim. It has proved that we indeeddo possess knowledge which is not derived from observationand yet is constrained by objective laws. In fact, ourrefutation of empiricism and historicism contains such apriori synthetic knowledge. Yet what about the constructivetask of showing that the propositions of economics-suchas the law of marginal utility and the quantity theory ofmoney-qualify as this type of knowledge? In order to doso, Mises notices in accordance with the strictures traditionallyformulated by rationalist philosophers, economicpropositions must fulfill two requirements: First, it mustbe possible to demonstrate that they are not derived fromobservational evidence, for observational evidence can onlyreveal things as they happen to be; there is nothing in it thatwould indicate why things must be the way they are. Instead,economic propositions must be shown to be grounded inreflective cognition, in our understanding of ourselves asknowing subjects. And secondl~ this reflective understandingmustyield certain propositions as self-evident material axioms.Not in the sense that such axioms would have to be self-evidentin a psychological sense, that is, that on~ would have to beimmediately aware of them or that their truth depends on apsychological feeling ofconviction. On the contrar~ like Kantbefore him, Mises very much stresses the fact that it is usuallymuch more painstaking to discover such axioms than it is todiscover some observational truth such as that the leaves oftrees are green or that I am 6 foot 2 inches. 50 Rather, what50See Kant, Kritik der reinen Vernunft, p. 45; Mises, Human Action, p. 38.60 • The Ludwig von Mises Institute

Hans-Hermann Hoppemakes them self-evident material axioms is the fact that noone can deny their validity without self-contradiction, becausein attempting to deny them one already presupposestheir validi~Mises points out that both requirements are fulfilled bywhat he terms the axiom ofaction, Le., the proposition thathumans act, that they display intentional behavior. 51 Obviousl~this axiom is not derived from observation-there areonly bodily movements to be observed but no such thing asactions-but stems instead from reflective understanding.And this understanding is indeed of a self-evident proposicion.For its truth cannot be denied, since the denial woulditselfhave to be categorized as an action. But is this not justplain trivial? And what has economics got to do with this?Ofcourse, it had previously been recognized that economicconcepts such as prices, costs, production, mone~ credit,etc., had something to do with the fact that there were actingpeople. But that all ofeconomics could be grounded in andreconstructed based on such a trivial proposition and ho~is certainly anything but clear. It is one of Mises's greatestachievements to have shown precisely this: that there areinsights implied in this psychologically speaking trivial axiomof action that were not themselves psychologicallyself-evident as well; and that it is these insights whichprovide the foundation for the theorems of economics astrue a priori synthetic propositions.It is certainly not psychologically evident that with everyaction an actor pursues a goal; and that whatever the goalmay be, the fact that it was pursued by an actor reveals thathe must have placed a relatively higher value on it than on anySIOn the following see in particular Mises, Human Action, chapter 4; MurrayN. Rothbard, Man, Economy, and State (Los Angeles: Nash, 1962), chapter 1.The Ludwig von Mises Institute • 61

Economic Science and the Austrian Methodother goal of action that he could think of at the start of hisaction. It is not evident that in order to achieve his mosthighly valued goal an actor must interfere or decide not tointerfere-which, of course, is also an intentional interference-atan earlier point in time in order to produce a laterresult; nor is it obvious that such interferences invariablyimply the employment of some scarce means-at least thoseof the actor's bod)!, its standing room, and the time absorbedby the action. Itis notself-evident that these means, then, mustalso have value for an actor-a value derived from that ofthegoal-because the actor must regard their employment asnecessary in order to effectively achieve the goal; and thatactions can only be performed sequentiall)T, always involvinga choice, i.e., taking up that one course ofaction which at somegiven time promises the most higWy valued results to the actorand excluding at the same time the pursual ofother, less higWyvalued goals. It is not automatically clear that as a consequenceof having to choose and give preference to one goal overanother-of not being able to realize all goals simultaneously-eachand every action implies the incurrence ofcosts,i.e., forsaking the value attached to the most highly rankingalternative goal that cannot be realized or whose realizationmust be deferred, because the means necessary to attain itare bound up in the production ofanother, even more highlyvalued goal. And lastl)!, it is not evident that at its startingpoint every goal of action must be considered worth moreto the actor than its cost and capable of yielding a profit,i.e., a result whose value is ranked higher than that of theforegone opportunit)T, and yet that every action is alsoinvariably threatened by the possibility of a loss if an actorfinds, in retrospect, that contrary to his expectations theactually achieved result in fact has a lower value than therelinquished alternative would have had.62 • The Ludwig von Mises Institute

Hans-Hermann HoppeAll ofthese categories which we know to be the very heartofeconomics-values, ends, means, choice, preference, cost,profit and loss-are implied in the axiom ofaction. Like theaxiom itself, they are not derived from observation. Rather,that one is able to interpret observations in terms of suchcategories requires that one already knows what it means toact. No one who is not an actor could ever understand them,as they are not"given," ready to be observed, butobservationalexperience is cast in these terms as it is construed by an actor.And while they and their interrelations were not obviouslyimplied in the action axiom, once it has been made explicitthat they are implied, and how, one no longer has anydifficulty recognizing them as being a priori true in the samesense as the axiom itself is. For any attempt to disprove thevalidity ofwhat Mises has reconstructed as implied in the veryconcept ofaction would have to be aimed at a goal, requiringmeans, excluding other courses of action, incurring costs,subjecting the actor to the possibility of achieving or notachieving the desired goal and so leading to a profit or a loss.Thus, it is manifestly impossible to ever dispute or falsify thevalidity of Mises's insights. In fact, a situation in which thecategories ofaction would cease to have a real existence coulditself never be observed or spoken of, since to make anobservation and to speak are themselves actions.All true economic propositions, and this is what praxeologyis all about and what Mises's great insight consists of, canbe deduced by means offormal logic from this incontestablytrue material knowledge regarding the meaning ofaction and itscategories. More precisel); all true economic theorems consist of(a) an understanding of the meaning ofaction, (b) a situationor situational change-assumedto be given oridentified as beinggiven-and described in terms of action-categories, and (c) alogical deduction ofthe consequences-again in terms ofsuchThe Ludwig von Mises Institute • 63

Economic Science and the Austrian Methodcategories-which are to result for an actor from this situationor situational change. The law of marginal utili~ forinstance,52 follows from our indisputable knowledge of thefact that every actor always prefers what satisfies him more overwhat satisfies him less, plus the assumption that he is faced withan increase in the supply ofa good (a scarce mean) whose unitshe regards as ofequal serviceabili~byone additional unit. Fromthis it follows with logical necessity that this additional unit canthen only be employed as a means for the removal of anuneasiness that is deemed less urgentthan the leastvaluable goalpreviously satisfied by a unit ofsuch a good. Provided there isno flaw in the process of deduction, the conclusions whicheconomic theorizing yields, no different in the case of anyother economic proposition from the case of the law ofmarginal utilit:}', must be valid a priori. These propositions'validity ultimately goes back to nothing but the indisputableaxiom ofaction. To think, as empiricism does, that these propositionsrequire continual empirical testing for their validation isabsurd, and a sign ofoutright intellectual confusion. And it isno less absurd and confused to believe, as historicism does, thateconomics has nothing to say about constant and invariablerelations but merely deals with historically accidental events. Tosay so meaningfully is to prove such a statement wrong, assaying anything meaningful at all already presupposes actingand a knowledge ofthe meaning of the categories of action.IIIThis will suffice here as an explanation ofMises's answerregarding the quest for the foundations ofeconomics. I shall520n the law of marginal utility see Mises, Human Action, pp. 119-27 andRothbard, Man, Economy, and State, pp. 268-71.64 • The Ludwig von Mises Institute

Hans-Hennann Hoppenow turn to my second goal: the explanation of why andhow praxeology also provides the foundation for e_pistemolo~Mises had been aware ofthis and he was convinced ofthegreat importance ofthis insight for rationalist philosophy: YetMises did not treat the matter in a systematic fashion. Thereare no more than a few briefremarks concerning this problem,interspersed throughout his massive body ofwriting.53 Thus,in the following I must try to break new ground.I shall begin my explanation by introducing a second apriori axiom and clarifying its relation to the axiom ofaction. Such an understanding is the key to solving ourproblem. The second axiom is the so-called "a priori ofargumentation," which states that humans are capable ofargumentation and hence know the meaning of truth andvalidity:54 As in the case of the action axiom, this knowledgeis not derived from observation: there is only verbal behaviorto be observed and prior reflective cognition is required inorder to interpret such behavior as meaningful arguments.And the validity ofthe axiom, like that ofthe action axiom,is indisputable. It is impossible to deny that one can argue,as the very denial would itself be an argument. In fact, one53Mises writes: "Knowledge is a tool of action. Its function is to advise manhow to proceed in his endeavor to remove uneasiness.... The category ofactionis the fundamental category of human knowledge. It implies all the categories oflogic and the category of regularity and causality. It implies the category of timeand that of value.... In acting, the mind ofthe individual sees itself as differentfrom its environment, the external world, and tries to study this environment inorder to influence the course ofevents happening in it" (The Ultimate FoundationofEconomic Science, pp. 35-36). Or: "Both, apriori thinking and reasoning on theone hand and human action on the other, are manifestations of the mind....Reason and action are congeneric and homogeneous, two aspects of the samephenomenon" (ibid., p.42). Yet he leaves the matter more or less at this andconcludes that "it is not the scope of praxeology to investigate the relation ofthinking and action" (Human Action, p. 25).540n the a priori of argumentation see also K. O. Apel, 1Yansfonnation derPhilosophie, vol. 2.The Ludwig von Mises Institute • 65

Economic Science and the Austrian Methodcould not even silently say to oneself "1 cannot argue"without thereby contradicting oneself. One cannot arguethat one cannot argue. Nor can one dispute knowing whatit means to make a truth or validity claim without implicitlyclaiming the negation of this proposition to be true.It is not difficult to detect that both a priori axioms-ofaction and argumentation-are intimately related. On theone hand, actions are more fundamental than argumentationswith whose existence the idea of validity emerges, asargumentation is only a subclass of action. On the otherhand, to recognize what has just been recognized regardingaction and argumentation and their relation to each otherrequires argumentation, and so, in this sense, argumentationmust be considered more fundamental than action: withoutargumentation nothing could be said to be known aboutaction. But then, as it is in argumentation that the insightis revealed that-while it might not be known to be so priorto any argumentation-in fact the possibility ofargumentationpresupposes action in that validity claims can only beexplicitly discussed in the course ofan argumentation iftheindividuals doing so already know what it means to act andto have knowledge implied in action-both the meaning ofaction in general and argumentation in particular must bethought of as logically necessary interwoven strands of apriori knowledge.What this insight into the interrelation between the apriori ofaction and the a priori ofargumentation suggests isthe following: Traditionall)', the task ofepistemology has beenconceived of as that of formulating what can be known tobe true a priori and also what can be known a priori not tobe the subject ofa priori knowledge. Recognizing, as we havejust done, that knowledge claims are raised and decided uponin the course of argumentation and that this is undeni~bly66 • The Ludwig von Mises Institute

Hans-Hermann Hoppeso, one can now reconstruct the task of epistemology moreprecisely as thatofformulating those propositions which areargumentatively indisputable in that their truth is alreadyimplied in the very fact of making one's atgument and socannot be denied argumentatively; and to delineate therange of such a priori knowledge from the realm of propositionswhose validity cannot be established in this way butrequire additional, contingent information for their validation,or that cannot be validated at all and so are meremetaphysical statements in the pejorative sense of the termmetaphysical.Yet what is implied in the very fact of arguing? It is tothis question that our insight into the inextricable interconnectionbetween the a priori of argumentation and that ofaction provides an answer: On a very general level, it cannotbe denied argumentatively that argumentation presupposesaction and that arguments, and the knowledge embodied inthem, are those of actors. And more specificall~ it cannotthen be denied that knowledge itselfis a category ofaction;that the structure of knowledge must be constrained by thepeculiar function which knowledge fulfills within the frameworkof action categories; and that the existence of suchstructural constraints can never be disproved by any knowledgewhatsoever.It is in this sense that the insights contained in praxeologymust be regarded as providing the foundations ofepistemology:Knowledge is a category quite distinct from thosethat I have explained earlier-from ends and means. Theends which we strive to attain through our actions, and themeans which we employ in order to do so, are both scarcevalues. The values attached to our goals are subject toconsumption and are exterminated and destroyed in consumptionand thus must forever be produced anew. AndThe Ludwig von Mises Institute • 67

Economic Science and the Austrian Methodthe means employed must be economized, too. Not so,however, with respect to knowledge-regardless ofwhetherone considers ita means or an end in itself. Of course, theacquisition of knowledge requires scarce means-at leastone's body and time. Yet once knowledge is acquired, it isno longer scarce. It can neither be consumed, nor are theservices that it can render as a means subject to depletion.Once there, it is an inexhaustible resource and incorporatesan everlasting value provided that it is not simply forgotten.55 Yet knowledge is not a free good in the same sense thatair, under normal circumstances, is a free good. Instead, it is acategory of action. It is not only a mental ingredient ofeachand every action, quite unlike air, but more importantl);knowledge, and not air, is subject to validation, which is tosay that it must prove to fulfill a positive function for anactor within the invariant constraints of the categoricalframework of actions. It is the task of epistemology toclarify what these constraints are and what one can thusknow about the structure of knowledge as such.While such recognition of the praxeological constraintson the structure ofknowledge might not immediately strikeone as in itselfofgreat significance, it does have some highlyimportant implications. For one thing, in light of this insightone recurring difficulty of rationalist philosophy findsits answer. It has been a common quarrel with rationalism inthe Leibniz-Kant tradition that it seemed to imply some sortofidealism. Realizing that a priori true propositions could notpossibly be derived from observations, rationalism answeredthe question how a priori knowledge could then be possibleby adopting the model of an active mind, as opposed550n this fundamental difference between economic, i.e., scarce means andknowledge, see also Mises, Human Action, pp. 128, 661.68 • The Ludwig von Mises Institute

Hans-Hermann Hoppeto the empiricistmodelofa passive, mirror-like mind in thetradition of Locke and Hume. According to rationalist philosoph~a priori true propositions had their foundation in theoperation of principles of thinking which one could not possiblyconceive ofas operating otherwise; they were grounded incategories ofan act;ive mind. No\\) as empiricists were only tooeager to point out, the obvious critique of such a position is,that ifthis were indeed the case, it could not be explained whysuch mental categories should fit realit¥ Rather, one would beforced to accept the absurd idealistic assumption that realitywould have to be conceived of as a creation of the mind, inorder to claim that a priori knowledge could incorporate anyinformation about the structure of reali~ And clearl~ such anassertion seemed to be justified when faced with programmaticstatements of rationalist philosophers such as the followingby Kant: "Sofar ithas been assumed thatourknowledgehad to conform to realit:)r," instead it should be assumed "thatobservational reality should conform to our mind."s6Recognizing knowledge as being structurally constrainedby its role in the framework of action categoriesprovides the solution to such a complaint. For as soon asthis is realized, all idealistic suggestions of rationalist phi­10sophy disappear, and an epistemology claiming that apriori true propositions exist becomes a realistic epistemologyinstead. Understood as constrained by action categories,the seemingly unbridgeable gulf between the mentalon the one hand and the real, outside physical world on theother is bridged. So constrained, a priori knowledge must56Immanuel Kant, Kritik der reinen vernunft, p. 25. Whether or not such aninterpretation ofKant's epistemology is indeed correct is, ofcourse, a very differentmatter. Clarifying this problem is, however, of no concern here. For an activist orconstructivist interpretation ofKantian philosophy see E Kambartel, Erfahrung undStruktur, chapter 3; also Hoppe, Handeln und Erkennen (Bern: Lang, 1976).The Ludwig von Mises Institute • 69

Economic Science and the Austrian Methodbe as much a mental thing as a reflection of the structure ofreali~ since it is only through actions that the mind comesinto contact with reality; so to speak. Acting is a cognitivelyguided adjustment ofa physical body in physical realit)T. Andthus, there can be no doubt that a priori knowledge, conceivedof as an insight into the structural constraints imposedon knowledge qua knowledge ofactors, must indeedcorrespond to the nature of things. The realistic characterofsuch knowledge would manifest itselfnot only in the factthat one could not think it to be otherwise, but in the factthat one could not undo its truth.Yet there are more specific implications involved in recognizingthe praxeological foundations ofepistemology-apartfrom the general one that in substituting the model of themind of an actor acting by means of a physical body for thetraditional rationalist model ofan active mind a priori knowledgeimmediately becomes realistic knowledge (so realisticindeed that it can be understood as being literally notundoable). More specificall)T, in light of this insight decisivesupport is given to those deplorably few rationalist philosopherswho-against the empiricist Zeitgeist-stubbornlymaintain on various philosophical fronts that a priori truepropositions about the real world are possible. 57 Moreover, in571n addition to the works mentioned in note 46 see Brand Blanshard, TheNature-of Thought (London: Allen and Unwin, 1921); M. Cohen, Reason andNature (New York: Harcourt, Brace, 1931); idem, Preface to Logic (New York:Holt, 1944); A. Pap, Semantics and Necessary Jruth (New Haven: Yale UniversityPress, 1958); S. Kripke, "Naming and Necessity," in D. Davidson and G. Harman,eds., Semantics ofNatural Language (New York: Reidel, 1972); H. Dingler, DieErgreifung des Wirklichen (Frankfurt/M.: Suhrkamp, 1969); idem, Aufbau derexakten Fundamentalwissenschaft (Munich: Eidos, 1964); W KamIah and P. Lorenzen,Logische Propiideutik Mannheim: (Mannheim: Bibliographisches Institut,1968); P. Lorenzen, Methodisches Denken (Frankfurt/M.: Suhrkamp, 1968); idem,Nonnative Logic and Ethics (Mannheim: Bibliographisches Institut, 1969); K. O.Apel, Transformation der Philosophie.70 • The Ludwig von Mises Institute

Hans-Hermann Hoppelight of the recognition of praxeological constraints on thestructure of knowledge these various rationalist endeavorsbecome systematically integrated into one, unified body ofrationalist philosophy;In explicitly understanding knowledge as displayed inargumentation as a peculiar category of action, it becomesclear immediately why the perennial rationalist claim thatthe laws oflogic-beginning here with the most fundamentalones, i.e., ofpropositional logic and ofJunctors ("and," "or,""if-then," "not") and Quantors ("there is," "all," "some")-area priori true propositions about reality and not mere verbalstipulations regarding the transformation rules of arbitrarilychosen signs, as empiricist-formalists would have it, is indeedcorrect. They are as much laws of thinking as of reality;because they are laws that have their ultimate foundation inaction and could not be undone by any actor. Ineach and everyaction, an actor identifies some specific situation and categorizesit one way rather than another in order to be able to makea choice. It is this which ultimately explains the structure ofeven the most elementary propositions (like "Socrates is aman") consisting ofa proper name or some identifying expressionfor the naming or identifying ofsomething, and a predicateto assert or deny some specific property of the named oridentified object; and which explains the cornerstones oflogic:the laws of identity and contradiction. And it is this universalfeature of action and choosing which also explains our understandingof the categories "there is," "all" and, by implication,"some," as well as "and," "or," "if.then" and "not."S8 One can say,580n rationalist interpretations of logic see Blanshard, Reason and Analysis,chapters 6, 10; P. Lorenzen, Einfuhrung in die operative Logik und Mathematik(Frankfun/M.: Akademische Verlagsgesellschaft, 1970); K. Lorenz, Elemente derSprachkritik (Frankfurt/M.: Suhrkamp, 1970); idem, "Diedialogische Rechtfertigungder effektiven Logik," in: E Kambartel and ]. Mittelstrass, eds., Zum normativenFundament der Wissenschaft (Frankfurt/M.: Athenaum, 1973).The Ludwig von Mises Institute • 71

Economic Science and the Austrian Methodofcourse, that something can be "a" and "non-a" at the sametime, or that "and" means this rather than something else. Butone cannot undo the law of contradiction; and one cannotundo the real definition of "and." For simply by virtue ofacting with a physical body in physical space we invariablyaffirm the law of contradiction and invariably display ourtrue constructive knowledge of the meaning of "and" and"or."Similarly; the ultimate reason for arithmetic's being ana priori and yet empirical discipline, as rationalists haveOn the propositional character oflanguage and experience, in particular, seeW KamIah and P. Lorenzen, Logische Propiideutik, chapter 1; P. Lorenzen, NormativeLogic and Ethics, chapter 1. Lorenzen writes: "I call a usage a convention if Iknow ofanother usage which 1 could accept instead.·... However, I do not knowofanother behavior which could replace the use ofelementary sentences. IfI didnot accept proper names and predicators, I would not know how to speak at all.. . . Each proper name is a convention ... but to use proper names at all is nota convention: it is a unique pattern oflinguistic behavior. Therefore, I am goingto call it 'logical'. The same is true with predicators. Each predicator is aconvention. This is shown by the existence of more than one natural language.But all languages use predicators" (ibid., p. 16). See also J. Mittelstrass, "DieWiederkehr des Gleichen," Ratio (1966).On the law of identity and contradiction, in particular, see B. Blanshard,Reason and Analysis, pp. 276ff, 423ff.On a critical evaluation of 3- or more-valued logics as either meaninglesssymbolic formalisms or as logically presupposing an understanding of the traditionaltwo-valued logic see W Stegmiiller, HauptstrOmungen der Gegenwartsphilosophievol. 2 (Stuttgart: Kroner, 1975), pp. 182-91; B. Blanshard, Reason and Analysis,pp. 269-75. Regarding, for instance, the many-valued or open-textured logic,proposed by E Waismann, Blanshard notes: "We can only agree with Dr. Waismann-andwith Hegel-that the black-and-white distinctions offormal logic arequite inadequate to living thought. But why should one say, as Dr.Waismann does,that in adopting a more differentiated logic one is adopting an alternative systemwhich is incompatible with black-and-white logic? What he has actually done isto recognize a number of gradations within the older meaning ofthe word 'not'.We do not doubt that such gradations are there, and indeed as many more as hecares to distinguish. But a refinement ofthe older logic is not an abandonment ofit. It is still true that the colour I saw yesterday was either a determinate shade ofyellow or not, even though the 'not' may cover a multitude of approximations,and even though I shall never know which was the shade I saw" (ibid., pp.273-74).72 • The Ludwig von Mises Institute

Hans-Hennann Hoppealways understood it, now also becomes discernible. The prevailingempiricist-formalist orthodoxy conceives of arithmeticas the manipulation ofarbitrarily defined signs according toarbitrarily stipulated transformation rules, and thus as entirelyvoid of any empirical meaning. For this view; whichevidently makes arithmetic nothing but pIa); however skillfulit might be, the successful applicability of arithmetic inphysics is an intellectual embarrassment. Indeed, empiricistformalistswould have to explain away this fact as simplybeing a miraculous event. That it is no miracle, however,becomes apparent once the praxeological or-to use here theterminology ofthe most notable rationalist philosopher-mathematicianPaul Lorenzen and his school-the operative or constructivistcharacter of arithmetic is understood. Arithmeticand its character as an a priori-synthetic intellectual disciplineis rooted in our understanding of repetition, therepetition of action. More precisel); it rests on our understandingthe meaning of"do this-and do this again, startingfrom the present result." And arithmetic then deals withreal things: with constructed or constructively identifiedunits of something. It demonstrates what relations are tohold between such units because of the fact that they areconstructed according to the rule of repetition. As PaulLorenzen has demonstrated in detail, not all of what presentlyposes as mathematics can be constructivelyfounded-and those parts, then, should ofcourse be recognizedfor what they are: epistemologically worthless symbolicgames. But all of the mathematical tools that are actuallyemployed in physics, i.e., the tools ofclassical analysis, can beconstructively derived. They are not empirically void symbolisms,but true propositions about reali~ They apply toeverything insofar as it consists of one or more distinctunits, and insofar as these units are constructed or identifiedThe Ludwig von Mises Institute • 73

Economic Science and the Austrian Methodas units by a procedure of"do it again, construct or identifyanother unit by repeating the previous operation."S9 Again,one can say, of course, that 2 plus 2 is sometimes 4 butsometimes 2 or 5 units, and in observational reality; for lionsplus lambs or for rabbits, this may even be true,60 but in thereality of action, in identifying or constructing those unitsin repetitive operations, the truth that 2 plus 2 is neveranything but 4 could not possibly be undone.Further, the old rationalist claims that geometry; that is,Euclidean geometry is a priori and yet incorporates empiricalknowledge about space becomes supported, too, in viewof our insight into the praxeological constraints on knowledge.Since the discovery of non-Euclidean geometries and590n a rationalist interpretation of arithmetic see Blanshard, Rcason andAnalysis~ pp. 427-31; on the constructivist foundation ofarithmetic, in particular,see Lorenzen, EinfUhrung in die operative Logik und Mathematik; idem, MethodischesDenken, chapters 6, 7; idem, Normative Logic and Ethics~ chapter 4; on theconstructivist foundation of classical analysis see P. Lorenzen, Differential undIntegral: Eine konstruktive EinfUhrung in die klassische Analysis (Frankfurt/M.:Akademische Verlagsgesellschaft, 1965); for a brilliant general critique ofmathematical formalism see Kambartel, Erfahrung und Struktur, chapter 6,esp. pp. 236-42; on the irrelevance ofthe famous Godel-theorem for a constructivelyfounded arithmetic see P. Lorenzen,Metamathematik (Mannheim: BibliographischesInstitut, 1962); also Ch. Thiel, "Das Begrlindungsproblem derMathematik und die Philosophie," in E Kambartel and J. Mittelstrass, eds.,Zum normativen Fundament der Wissenschaft, esp. pp. 99-101. K. Godel'sproof-which, as a proof, incidentally supports rather than undermines therationalist claim ofthe possibility ofapriori knowledge-only demonstrates thatthe early formalist Hilbert program cannot be successfully carried through,because in order to demonstrate the consistency of certain axiomatic theoriesone must have a metatheory with even stronger means than those formalizedin the object-theory itself. Interestingly enough, the difficulties ofthe formalistprogram had led the old Hilbert already several years before Godel's proof of1931 to recognize the necessity ofreintroducing a substantive interpretation ofmathematics ala Kant, which would give its axioms a foundation and justificationthat was entirely independent of any formal consistency proofs. SeeKambartel, Erfahrung und Struktu1j pp. 185-87.60Examples of this kind are used by Karl Popper in order to "refute" therationalist idea of rules of arithmetic being laws of reality. See Karl Popper,Conjectures and Refutations (London: Routledge and Kegan Paul, 1969), p. 211.74 • The Ludwig von Mises Institute

Hans-Hernt-ann Hoppein particular since Einstein's relativistic theory of gravitation,the prevailing position regarding geometry is onceagain empiricist and formalist. It conceives of geometry aseither being part of empirical, aposteriori physics, or asbeing empirically meaningless formalisms. Yet thatgeometryis either mere pIa)', or forever subject to empirical testingseems to be irreconcilable with the fact that Euclideangeometry is the foundation of engineering and construction,and that nobody there ever thinks ofsuch propositionsas only hypothetically true. 61 Recognizing knowledge aspraxeologically constrained explains why the empiricist-formalistview is incorrect and why the empirical success ofEuclidean geometry is no mere accident. Spatial knowledgeis also included in the meaning of action. Action is theemployment of a physical body in space. Without actingthere could be no knowledge of spatial relations, and nomeasurement. Measuring is relating something to a standard.Without standards, there is no measurement; and thereis no measurement, then, which could ever falsify the standard.Evidentl)', the ultimate standard must be provided bythe norms underlying the construction ofbodily movementsin space and the construction of measurement instrumentsby means of one's body and in accordance with the principlesof spatial constructions embodied in it. Euclidean geometr)',as again Paul Lorenzen in particular has explained,is no more and no less than the reconstruction of the idealnorms underlying our construction of such homogeneousbasic forms as points, lines, planes and distances, which arein a more or less perfect but always perfectible way incorporatedor realized in even our most primitive instrumentsofspatial measurements such as a measuring rod. Naturall)',61SeeonthisalsoMises, The Ultimate Foundation ofEconomic Science) pp.12-14.The Ludwig von Mises Institute • 75

Economic Science and the Austrian Methodthese norms and normative implications cannot be falsifiedby the result ofany empirical measurement. On the contrar~their cognitive validity is substantiated by the fact that it isthey which make physical measurements in space possible.Any actual measurement must already presuppose the validityofthe norms leading to the construction ofone's measurementstandards. Itis in this sense thatgeometry is an a priori science;and that itmust simultaneously be regarded as an empiricallymeaningful discipline, because it is not only the very preconditionfor any empirical spatial description, it is also theprecondition for any active orientation in space. 62In view ofthe recognition ofthe praxeological characterof knowledge, these insights regarding the nature of logic,arithmetic and geometry become integrated and embeddedinto a system of epistemological dualism. 63 The ultimate620n the aprioristic character ofEuclidean geometry see Lorenzen,MethodischesDenken, chapters 8 and 9; idem, Normatipe Logic and Ethics, chapter 5; H.Dingler, Die Grundlagen der Geometrie (Stuttgart: Enke, 1933); on Euclideangeometry as a necessary presupposition of objective, i.e., intersubjectively communicable,measurements and in particular of any empirical verification of non­Euclidean geometries (after all, the lenses of the telescopes which one uses toconfirm Einstein's theory regarding the non-Euclidean structure ofphysical spacemust themselves be constructed according to Euclidean principles) see Kambartel,Erfahrung und Struktur, pp. 132-33; ~ Janich, Die Protophysik der Zeit(Mannheim: Bibliographisches Institut, 1969), pp. 45-50; idem, "Eindeutigkeit,Konsistenz und methodische Ordnung," in E Kambartel and J. Mittelstrass, eds.,Zum normatipen Fundament der Wissenschaft.Following the lead ofHugo Dingler, Paul Lorenzen and other members ofthe so-called Erlangen school have worked out a system of protophysics, whichcontains all aprioristic presuppositions ofempirical physics, including, apart fromgeometry, also chronometry and hylometry (i.e., classical mechanics withoutgravitation, or "rational" mechanics). "Geometry, chronometry and hylometry area-priori theories which make empirical measurements ofspace, time and materia'possible'. They have to be established before physics in the modern sense of anempirical science, with hypothetical fields offorces, can begin. Therefore, I shouldlike to call these disciplines by a common name: protophysics." Lorenzen, NormatiTJeLogic and Ethics, p. 60.630n the fundamental nature of epistemological dualism see also Mises,Theory and History, pp. 1-2.76 • The Ludwig von Mises Institute

Hans-Hermann Hoppejustification for this dualist position, i.e., the claim thatthere are two realms of intellectual inquiry that can beunderstood a priori as requiring categorically distinct methodsof treatment and analysis, also lies in the praxeologicalnature of knowledge. It explains why we must differentiatebetween a realm ofobjects which is categorized causally anda realm that is categorized teleologically instead.I have already briefly indicated during my discussioJ} ofpraxeology that causality is a category ofaction. The idea ofcausality that there are constant, time-invariantly operatingcauses which allow one to project past observations regardingthe relation ofevents into the future is something (as empiricismsince Hume has noticed) which has no observationalbasis whatsoever. One cannot observe the connecting linkbetween observations. Even if one could, such an observationwould not prove it to be a time-invariant connection.Instead, the principle of causality must be understood asimplied in our understanding of action as an interferencewith the observational world, made with the intent ofdiverting the "natural" course ofevents in order to producea different, prefered state of affairs, i.e., of making thingshappen that otherwise would not happen, and thus presupposesthe notion of events which are related to each otherthrough time-invariantly operating causes. An actor mighterr with respect to his particular assumptions about whichearlier interference produced which later result. But successfulor not, any action, changed or unchanged in light of itsprevious success or failure, presupposes that there are constantlyconnected events as such, even if no particular causefor any particular event can ever be preknown to any actor.Without such an assumption it would be impossible to evercategorize two or more observational experiences as falsifyingor confirming each other rather than interpreting themThe Ludwig von Mises Institute • 77

Economic Science and the Austrian Methodas logically incommensurable events. Only because the existenceoftime-invariantly operating causes as such is alreadyassumed can one ever encounter particular instances of confirmingor disconfirming observational evidence, or can thereever be an actor who can learn anything from past experienceby classifying his actions as successful and confirming someprevious knowledge, or unsuccessful and disconfirming it.It is simply by virtue of acting and distinguishing betweensuccesses and failures that the a priori validity ofthe principIeof causality is established; even if one tried, one couldnot successfully refute its validi~64In so understanding causality as a necessary presuppositionof action, it is also immediately implied that its rangeof applicability must then be delineated a priori from thatof the category of teleolog)T. Indeed, both categories arestrictly exclusive and complementar)T. Action presupposes acausally structured observational reali~ but the reality ofaction which we can understand as requiring such structure,is not itself causally structured. Instead, it is a reality thatmust be categorized teleologicall~ as purpose-directed,meaningful behavior. In fact, one can neither deny nor undo640n the aprioristic character of the category of causality see Mises, HumanAction, chapter 1; Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung;idem, "Is Research Based on Causal Scientic Principles Possible in the SocialSciences?"; on the causality principle as a necessary presupposition in particularalso of the indeterminacy principle of quantum physics and the fundamentalmisconception involved in interpreting the Heisenberg-principle as invalidatingthe causality principle see Kambartel, Erfahrung und StruktuJ; pp. 138-40; alsoHoppe, "In Defense ofExtreme Rationalism," footnote 36. In fact, it is preciselythe indisputable praxeological fact that separate measurement acts can only beperformed sequentially which explains the very possibility of irreducibly probabilistic-ratherthan deterministic-predictions as they are characteristic of quantumphysics; and yet, in order to perform any experiments in the field ofquantummechanics, a.nd in particular to repeat two or more experiments and state this tobe the case, the validity of the causality principle must evidently already bepresupposed.78 • The Ludwig von Mises Institute

Hans-Hermann Hoppethe view that there are two categorically different realms ofphenomena, since such attempts would have to presupposecausally related events qua actions that take place withinobservational reali~ as well as the existence ofintentionallyrather than causally related phenomena in order to interpretsuch observational events as meaning to deny something.Neither a causal, nor a teleological monism could be justifiedwithout running into an open contradiction: physicallystating either position, and claiming to say something meaningfulin so doing, the case is in fact made for an indisputablecomplementarity of both, a realm of causal andteleological phenomena.65Everything which is not an action must necessarily becategorized causall~ There is nothing to be known a prioriabout this range of phenomena except that it is structuredcausally-and that it is structured according to the categoriesof propositional logic, arithmetic and geometry:66Everything else there is to know about this range of phenomenamust be derived from contingent observations andthus represents aposteriori knowledge. In particular, allknowledge about two or more specific observational eventsbeing causally related or not is aposteriori knowledge. 0 b­viously; the range of phenomena described in this waycoincides (more or less) with what is usually considered tobe the field of the empirical natural sciences.650n the necessary complementarity of the categories of causality andteleology see Mises, Human Action, p. 25; idem, The Ultimate Foundation ofEconomic Science) pp. 6-8; Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung;idem, "Is Research Based on Causal Scientific Principles Possible in theSocial Sciences?"; also G. v. Wright, Nann and Action (London: Routledge andKegan Paul, 1963); idem, Explanation and Understanding (Ithaca, N.Y:: CornellUniversity Press, 1971); K. O. Apel, Die ErkJitren: ftrstehen Kontroverse in transzendental-pragmatischerSicht (Frankfurt/M.: Suhrkamp, 1979).66More precisely still: it is structured according to the categories of logic,arithmetic, and protophysics (including geometry). See note 62 above.The Ludwig von Mises Institute • 79

Economic Science and the Austrian MethodIn contrast, everything that is an action must be categorizedteleologicall~ This realm ofphenomena is constrainedby the laws of logic and arithmetic, too. But it is notconstrained by the laws of geometry as incorporated in ourinstruments of measuring spatially extending objects, becauseactions do not exist apart from subjective interpretationsof observable things; and so they must be identifiedby reflective understanding rather than spatial measurements.Nor are actions causally connected events, but eventsthat are connected meaningfully within a categorical frameworkofmeans and ends.One can not know a priori what the specific values,choices and costs of some actor are or will be. This wouldfall entirely into the province of empirical, aposterioriknowledge. In fact, which particular action an actor is goingto undertake would depend on his knowledge regarding theobservational reality and/or the reality of other actors' actions.And it would be manifestly impossible to conceive ofsuch states of knowledge as predictable on the basis oftime-invariantly operating causes. A knowing actor cannotpredict his future knowledge before he has actually acquiredit, and he demonstrates, simply by virtue ofdistinguishingbetween successful and unsuccessful predictions, that hemust conceive of himself as capable of learning from unknownexperiences in as yet unknown ways. Thus, knowledgeregarding the particular course of actions is onlyaposteriori. And since such knowledge would have to includethe actor's own knowledge-as a necessary ingredientof every action whose every change can have an influenceon a particular action being chosen-teleological knowledgemust also necessarily be reconstructive, or historical knowledge.It would only provide ex-post explanations whichwould have no systematic bearing on the prediction of80 • The Ludwig von Mises Institute

Hans-Hermann Hoppefuture actions, because, in principle, future states ofknowledgecould never be predicted on the basis of constantlyoperating empirical causes. Obviousl~ such a delineation ofa branch of aposteriori and reconstructive science of actionfits the usual description of such disciplines as history andsociology; 67What is known to be true a priori regarding the field ofaction, and what would then have to constrain any historicalor sociological explanation is this: For one thing, any suchexplanation, which essentially would have to reconstruct anactor's knowledge, would invariably have to be a reconstructionin terms of knowledge of ends and means, of choicesand costs, of profits and losses and so on. And secondl~since these are evidently the categories of praxeology asconceived of by Mises, any such explanation must also beconstrained by the laws of praxeolog~And since these lawsare, as I have already explained, a priori laws, they must alsooperate as logical constraints on any future course ofaction.They are valid independent of any specific state of knowledgethat an actor might have acquired, simply by virtue ofthe fact that whatever this state might be, it must be describedin terms of action categories. And as referring toactions as such, the laws of praxeology must then be coextensivewith all the predictive knowledge there can be in thefield of the science of action. In fact, ignoring for themoment that the status of geometry as an a priori sciencewas ultimately grounded in our understanding ofaction andin so far praxeology would have to be regarded as the morefundamental cognitive discipline, the peculiar role of67On the logic of history and sociology as reconstructive disciplines see inaddition to the works of Mises mentioned at the outset of this chapter Hoppe,Kritik der kausalwissenschaftlichen Sozialforschung, chapter 2.The Ludwig von Mises Institute • 81

Economic Science and the Austrian Methodpraxeology proper within the entire system ofepistemologycan be understood as somewhat analogous to thatofgeometr~Praxeology is for the field of action what Euclideangeometry is for the field of observations (non-actions). Asthe geometry incorporated in our measuring instrumentsconstrains the spatial structure bf observational reali~ sopraxeology constrains the range of things that can possiblybe experienced in the field ofactions. 68IVIn so establishing the place ofpraxeology proper, I havecome full circle in outlining the system of rationalistphilosophy as ultimately grounded in the action axiom. Ithas been my goal here to reaffirm Mises's claim that economicsis praxeology; that the case for praxeology is anindisputable one; and that empiricist or historicist-hermeneuticistinterpretations of economics are self-contradictorydoctrines. And it has been my objective to indicatethat the Misesian insight into the nature ofpraxeology alsoprovides the very foundation on which traditional rationalistphilosophy' can be successfully reconstructed, and systematicallyintegrated.For the rationalist philosopher this would seem to implythat he should take account of praxeolog~For it is preciselythe insight into the praxeological constraints on the structureof knowledge which provides the missing link in hisintellectual defense against skepticism and relativism. For680n the categorical distinctiveness ofpraxeological theory and history andsociology and the logical constraints that praxeology imposes on historical andsociological research as well as on social and economic predictions see Mises,Human Action, pp. 51-59, 117-18; Hoppe, "In Defense ofExtreme Rationalism."82 • The Ludwig von Mises Institute

Hans-Hermann Hoppethe economist in the tradition of Mises it means, I claim,that he should explicitly come to recognize his place withinthe wider tradition of western rationalism; and that heshould learn to incorporate the insights provided by thistradition in order to construct an even more impressive andprofound case for praxeology and Austrian economics thanthe one made by the great Mises himself.The Ludwig von Mises Institute • 83

Economic Science and the Austrian MethodRecommended ReadingsBlock, Walter. "On Robert Nozick's 'On Austrian Methodology'."Inquiry 23 (1980).Hollis, Martin, and Edward Nell. Rational Economic Man: APhilosophical Critique ofNeo-Classical Economics. Cambridge:Cambridge University Press, 1975.Hoppe, Hans-Hermann. Kritik der kausalwissenschaftlichen Sozialforschung.Unterschungen zur Grundlegung von Soziologie undOkonomie. Opladen: Westdeutscher Verlag, 1983.-. "Is Research Based on Causal Scientific Principles Possiblein the Social Sciences?" Ratio 25, no. 1 (1983).-. "In Defense ofExtreme Rationalism." Review ofAustrianEconomics 3 (1988).-. A Theory ofSocialism and Capitalism. Kluwer AcademicPublishers, 1989.-. "On Praxeology and the Praxeological Foundations ofEpistemology and Ethics." In Llewellyn H. Rockwell, Jr., ed.,The Meaning ofLudwig von Mises. Auburn, Ala.: Ludwig vonMises Institute, 1989.-. The Economics and Ethics ofPrivate Property. Kluwer AcademicPublishers, 1993.Kirzner, Israel M. The Economic Point ofView. Kansas City;Kans.: Sheed and Ward, 1976.Lavoie, Don. "From Hollis and Nell to Hollis and Mises."JournalofLibertarian Studies, I, no. 4 (1977).Mises, Ludwig von. Epistemological Problems ofEconomics. NewYork: New York University Press, 1981.-. Human Action: A Treatise on Economics. Chicago: HenryRegnery; 1966; Part 1.85 • The Ludwig von Mises Institute

Economic Science and the Austrian Method-. Theory and History. Washington, D.C.: Ludwig von MisesInstitute, [1969] 1985.-. The Ultimate Foundation ofEconomic Science. Kansas Ci~Kans.: Sheed Andrews and McMeel, 1978.Rizzo, Mario. "Praxeology and Econometrics: A Critique ofPositivist Economics." In Louis M. Spadaro, ed., New Directionsin Austrian Economics. Kansas Cit:}r, Kans.: Sheed Andrewsand McMeel, 1978.Robbins, Lionel. The Nature and Significance ofEconomic Science.New York: New York University Press, 1984.Rothbard, Murray N. "Praxeology: Reply to Mr. Schuller."American Economic Review, December 1951.-. "In Defense ofExtreme Apriorism." Southern EconomicJourna123, no. 3 (January 1957)._. Man) Economy) and State. 2 Vols. Los Angeles: Nash 1970[1962]; Chapter 1.-. "Praxeology: The Methodology ofAustrian Economics." InEdwin Dolan, cd., The Foundations ofModern Austrian Economics.Kansas Cit~ Kans.: Sheed and Ward, 1976._. Individualism and the Philosophy ofthe Social Sciences. SanFrancisco: Cato Institute, 1979.Selgin, George. "Praxeology and Understanding: An Analysis ofthe Controversy in Austrian Economics." Review ofAustrianEconomics 2 (1987).Strigl, Richard von. Die okonomischen Kategorien und die Ot;ganisationder Wirtschaft. Jena: Gustav Fischer, 1923.86 • The Ludwig von Mises Institute

INDEXAlbert, H., 10Andreski, St., 54Apel, K. 0., 38, 43, 57, 65,70, 79Aposteriori propositions, 17,79,80A priori ofargumentation, 65--67A priori propositions, 17, 35A priorism, 8, 9, 10, 11,14-15,24-26,44,60,69-71,81A priori synthetic propositions,19-25, 35, 59Analytic propositions, 17, 33Austrian school, 7-8, 27Axiom of action, 21-25,61-63,67Ayer, Alfred J., 28Barnes, J., 54Blalock, H. B., 36Blanshard, Brand, 33, 56, 70,71,72,74Blaug, Mark, 9, 51Bohm-Bawerk, Eugen von, 12Cairnes, John Elliott, 10,11-12,55Carnap, R., 28Causalit~ 18, 21, 29-32,36-38, 77-79Chomsk~Noam, 43Cohen, M., 70Comparative advantage(Ricardian law of association),14, 16Data analysis, 31-32Davidson, D., 70Dingler, Hugo, 21, 35, 70, 76Dolan, Edwin, 56Duncan, 0., 36Empiricism, 13-14, 28-31,51-53.criticisms of, 33-38, 55-57Epistemolog~ 17-21, 49-50,65-83Forecasting, 31-32, 38-40,43-48, 79Friedman, Milton, 31, 51Geomet~ 18, 74-76, 80,81-82Godel, K., 74Goldberger, A., 36Gordon, David, 54Habermas, Jiirgen, 42, 43, 57Harman, G., 70Hempel, C. G., 28Hermeneutics 53-54, 58Historicism 31, 53-55criticisms of, 57-59Histo~ 31-32, 40-43Hollis, Martin, 33, 56The Ludwig von Mises Institute • 87

Economic Science and the Austrian MethodHoppe, Hans-Hermann, 10,21,26,30,35,36,38,44,46,50,54,59,78,79,81Hume, David, 17, 59Hutchison, M. G., 51Hutchison, Terence W, 9Kambartel, E, 18, 19, 21, 33,35,56,74,76,78KamIah, W, 70Kant, Immanuel, 17, 18, 19,59,60Kaufmann, Felix, 28Knight, Frank H., 12Kraft, ~, 51Kripke, S., 70Lachmann, Ludwig, 44, 53Locke, John, 59Lorenz, K., 19, 71Lorenzen, Paul, 21, 35,70, 71,72, 74, 75, 76MacIntyre, A., 42Marginal utili~ 14, 16, 50, 64Mathematics, 18, 21, 72-74McCloske)', Donald, 53Menger, Carl, 12, 55Mill, John Stuart, 55Minimum wage, 15, 16Mises, Ludwig von, 8, 10, 12,17,20-22,34,36,40,42,44,49,53,55-56,59,60,61,64,65,68,76,78,79,82Mittelstaedt, E, 21Mittelstrass, J., 35, 72, 74, 76Nagel, Ernest, 28Natural sciences, 13, 35, 79Nell, Edward, 33, 56Pap, A., 33, 70Popper, Karl, 9, 28, 38, 53, 74Praxeolog)T, 8, 25, 27, 47-48,49-83Quantity of money theor)T, 15,44-47,51Rand, Ayn, 20Rationalist philosoph)', 59,68-69,82-83Ricardo, David, 14Robbins, Lionel ,12Rockwell, Llewellyn H., Jr., 10Rothbard, Murra)', 47, 53, 55,61,64Sa)', Jean Baptiste, 10-11, 55Senior, Nassau, 10, 11, 55Sombart, Werner, 53Stegmuller, W, 72Stinchcombe, Arthur L., 36Strigl, Richard von, 12Structure ofknowledge, 67-68Synthetic propositions 17Teleolog)', 78-79Validation, 13-17Veatch, H., 54Waisman, E, 72Wieser, Friedrich von, 12, 55Winch, Peter, 43Wittgenstein, L., 21Wright, G. H. von, 43, 7988 • The Ludwig von Mises Institute

ABOUT THE AUTHORHans..Hermann Hoppe is an Austrian School econo..mist and libertarian/anarcho..capitalist philosopher.He is professor of economics at the University ofNevada, Las Vegas, a distinguished fellow with the Ludwig vonMises Institute, founder and president of the Property andFreedom Society, and editor..at..large of the Journal of LibertarianStudies.He was born on September 2, 1949, in Peine, Germany. Heattended the Universitat des Saarlandes, Saarbriicken, theGoethe..Universitat, Frankfurt/M., and the University of Michi..gan, Ann Arbor, for studies in philosophy, sociology, history,and economics. He earned his Ph.D. (philosophy 1974) and his"Habilitation" (sociology and economics, 1981), both from theGoethe..Universitat, Frankfurt/M.Professor Hoppe is the author of Handeln und Erkennen(1976); Kritik der kausalwissenschaftlichen Sozialforschung (1983);Eigentum, Anarchie und Staat (1987); Theory of Socialism and Cap~italism (1988); The Economics and Ethics of Private Property (1993;2nd ed. 2006); Democracy-The God That Failed (2001); The Mythof National Defense (2003); and numerous articles on philoso..phy, economics, and the social scienc~s.