Hoppe’s Ridiculous Attack on the Epistemological Foundation of Moderate Empiricism

I get mercifully few libertarians in the comments sections these days, but I recently got this challenge here.

Patrick asks me to respond to this critique here.

This is a passage from the Hans-Hermann Hoppe (Hoppe 2007: 33–34), and Hoppe is a defender of Kantian synthetic a priori knowledge as the epistemological foundation of epistemology and Misesian praxeology.

The proposition that is the epistemological foundation for classical and modern moderate empiricism, as Hoppe notes, is this:

“This is empiricism’s central claim: Empirical knowledge must be verifiable or falsifiable by experience; and analytical knowledge, which is not so verifiable or falsifiable, thus cannot contain any empirical knowledge. If this is true, then it is fair to ask: What then is the status of this fundamental statement of empiricism? Evidently it must be either analytical or empirical.” (Hoppe 2007: 33).

Hoppe notes that this must be defended and classified as either (1) analytic a priori or (2) synthetic a posteriori.

So which one is it? The answer is that it can be rationally and easily defended as a synthetic a posteriori proposition (that is to say, an empirical proposition).

But, according to Hoppe, this somehow leads to this:

“So perhaps we should choose the other available option and declare the fundamental empiricist distinction between empirical and analytical knowledge an empirical statement. But then the empiricist position would no longer carry any weight whatsoever. For if this were done, it would have to be admitted that the proposition – as an empirical one – might well be wrong and that one would be entitled to hear on the basis of what criterion one would have to decide whether or not it was. More decisively, as an empirical proposition, right or wrong, it could only state a historical fact, something like ‘all heretofore scrutinized propositions fall indeed into the two categories analytical and empirical.’ The statement would be entirely irrelevant for determining whether it would be possible to produce propositions that are true a priori and are still empirical ones. Indeed, if empiricism's central claim were declared an empirical proposition, empiricism would cease altogether to be an epistemology, a logic of science, and would be no more than a completely arbitrary verbal convention of calling certain arbitrary ways of dealing with certain statements certain arbitrary names. Empiricism would be a position void of any justification.” (Hoppe 2007: 34).

Huh? No longer “carry any weight whatsoever”?

If that were true, then all human natural or social science of any kind based on foundational empirical propositions or assumptions would not “carry any weight whatsoever.” This is nonsense.

The standard ideas we presuppose in either the natural sciences or social sciences (or indeed in everyday common sense) can indeed be justified empirically, by experience, inductive argument and inference to the best explanation (which is just another non-deductive, or inductive form of reasoning) by long debates and arguments in philosophy or in the natural and social sciences too.

At the most basic level, there are all sorts of assumptions that are epistemological foundations of our beliefs and scientific theories (including economics), such as the following:

(1) the real existence of other human minds;

(2) the real existence of an external world of matter and energy that is the causal origin of our sensory data (= an indirect realist ontology);

(3) that the past had real existence (and is not some figment of our imagination);

(4) the existence of a set of physical and chemical laws that have been discovered by the natural sciences that account for the order and nature of the universe;

(5) the view that our earth is about 4.54 billion years old;

(6) the view that all livings things on our earth are the product of a Darwinian process of evolution by natural selection (and, if one wants to be technical, also by (i) sexual selection and (ii) artificial selection by humans);

(7) the human mind is the product of the physical activity of the brain, and so on.

And of course we can keep listing such propositions too as we move from natural science to the social sciences.

None of these assumptions can be justified as analytic a priori or as Kantian synthetic a priori knowledge. They are all empirical propositions. Does the admission that they are not 100% certain make science impossible? No.

For example, we have the empirical proposition that:

“the earth and the planets of our solar system revolve around the sun.”

This is an empirical proposition, which is contingent, known a posteriori, and its truth is probabilistic.

That is to say, even though there is an enormous amount of empirical evidence in its favour, it could be that this proposition is wrong, because as a contingent and probabilistic truth, it is not 100% certain and never can be. It’s not impossible that it might be false, though it seems extremely improbable given all we know.

We must always be open to the possibility that new evidence might suddenly emerge that would throw doubt on our belief, even if (again) this seems extremely improbable.

But, at present, we have overwhelming evidence that it is true. The proposition therefore stands as a rational and defensible foundational assumption of any branch of cosmology studying solar systems.

There is no profound epistemological problem with this state of affairs, or with the foundation of the physics of solar systems, because we never said that the empirical propositions were 100% certain, nor do we need them to be, in order to get empirical knowledge whose truth is probabilistic and rationally defensible as true on the current evidence.

We accept the truth of all empirical propositions only as long as the weight of current evidence demonstrates that we have a good or very good case to think they are true. E.g., we have no good reason to doubt that gravity will suddenly stop operating 5 seconds from now, though it’s not impossible that it might for some unknown reason. Is that any reason to jump out of a 100 story building now and expect to float to the ground unharmed?

It is the same, broadly speaking, with the foundational proposition of moderate empiricism.

Our defence of the original epistemological principle is empirical and its truth is only probable or highly probable, but the lack of certainty produces no such epistemological crisis for empiricism, for the reason that it never aimed at absolute necessary truth in the first place, as Hoppe demands. Our best scientific theories do not have apodictic truth, nor does the inductive method yield absolute certainty, yet modern science is incredibly successful.

The rejection of dogmatism and the willingness to regard any scientific theory as capable of revision or falsification are what give modern scientific epistemology its great strength.

But if we adopted the same type of argument used by Hoppe, then we must conclude that modern science must “no longer carry any weight whatsoever” and “would cease altogether to be an epistemology.”

Secondly, the legitimate response of an empiricist to a Rationalist that “all heretofore scrutinized propositions fall indeed into the two categories analytical and empirical” can be defended as true. Hoppe’s point here carries no weight.

We need only look at the way Kant’s original synthetic a priori knowledge, such as Euclidean geometry, necessary and deterministic causation, or certain laws of logic have either been refuted by modern science or seriously questioned.

Hoppe’s next statement that the empiricist’s classification of knowledge “would be entirely irrelevant for determining whether it would be possible to produce propositions that are true a priori and are still empirical ones” is also a non sequitur, since, on the contrary, it is a defensible starting point for analysing all statements and all future statements and determining whether they could possibly provide synthetic truth but be known a priori. If, for example, some Rationalist asserts that statement x is a synthetic a priori truth, but we discover that the real world produces overwhelming empirical evidence against the proposition, then it is the Rationalist who is faced with an epistemological crisis.

In essence, there are very good reasons why most analytic philosophers have rejected Kantian synthetic a priori knowledge, as follows:

(1) The paradigmatic type of synthetic a priori knowledge that was Euclidean geometry, when asserted as a universally true theory of space, has been shown to be severely contradicted by the empirical evidence – and this is not what we would expect to find if this theory really was necessarily true and an irrefutable theory of reality.

(2) We can eliminate the problem of virtually all proposed synthetic a priori knowledge by carefully separating pure maths/pure geometry (which is analytic a priori and necessarily true, but not describing reality) from applied maths/applied geometry (which is asserted as true of reality but is synthetic a posteriori and contingent).

For example, most of mathematics can be clearly explained as an analytic a priori system, as derived from pure logic and set theory (Schwartz 2012: 19), as shown by the work of Frege, Russell, and Whitehead.

(3) From (1) and (2), we can satisfactorily explain proposed synthetic a priori knowledge either as (i) analytic a priori or (ii) synthetic a posteriori, eliminating a complex and unnecessary category.

If any Kantian or libertarian has any further nor new example of an alleged Kantian synthetic a priori statement, then he or she can make it, and we can scrutinise any and all such proposed propositions and see whether the claim is convincing. I’ve not yet seen any such proposed or credible proposition. For example, the idea that the human action axiom is a synthetic a priori truth collapses like a house of cards when seriously scrutinised.

Ultimately, we can reject synthetic a priori knowledge by inference to the best explanation and Ockham’s razor.

BIBLIOGRAPHY
Hoppe, Hans-Hermann. 2007. Economic Science and the Austrian Method. Ludwig von Mises Institute, Auburn. Ala.

Schwartz, Stephen P. 2012. A Brief History of Analytic Philosophy: From Russell to Rawls. Wiley-Blackwell, Chichester, UK.

Further Reading
For anyone interested in understanding why Misesian praxeology and Kantian synthetic a priori epistemology is wrong, see my posts here:

“Mises’ Praxeology: A Critique,” October 1, 2010.
“Limits of the Human Action Axiom,” February 28, 2011.
“Hayek on Mises’ Apriorism,” May 23, 2011.
“Mises and Logic,” August 26, 2011.
“Karl Popper’s View of Mises,” October 2, 2012.
“My Post on Praxeology gets some Attention,” March 7, 2012.
“Mises Flunks Evolution 101,” April 2, 2013.
“What is the Epistemological Status of Praxeology and the Action Axiom?,” July 27, 2013.
“Barrotta’s Kantian Critique of Mises’s Epistemology,” July 28, 2013.
“David Friedman versus Robert Murphy,” August 4, 2013.
“Mises Fails Philosophy of Mathematics 101,” August 30, 2013.
“Bob Murphy All At Sea on Geometry and Economic Epistemology,” August 31, 2013.
“Mises’s Non Sequitur on synthetic a priori Knowledge,” September 2, 2013.
“Tokumaru on Mises’s Epistemology,” September 3, 2013.
“Reply to a ‘Red Herring on Praxeology,’” September 6, 2013.
“Mises versus the Vienna Circle,” September 7, 2013.
“Mises’s Flawed Deduction and Praxeology,” September 8, 2013.
“Hoppe’s Caricature of Empiricism,” September 10, 2013.
“Hoppe on Euclidean Geometry,” September 11, 2013.
“Robert Murphy gets Mises’s Epistemology Wrong,” September 13, 2013.
“Hoppe on Euclidean Geometry, Part 2,” September 14, 2013.
“Mises on Kant and Praxeology,” September 15, 2013.
“Mises was Confused about the Analytic–Synthetic Distinction,” September 15, 2013.
“What is the Epistemological Status of the Law of Demand?,” September 19, 2013.
“A Simple Question for Austrian Apriorists,” November 20, 2013.
“Mises, Action and Uncertainty,” December 4, 2013.
“Córdoba on Praxeology and Economics,” December 7, 2013.
“Schuller’s Challenge to Misesian Apriorists has never been answered,” December 7, 2013.
“Mises versus Ayer on Analytic Propositions and a priori Reasoning,” March 16, 2014.
“David Gordon on Praxeology and the Austrian Method: A Critique,” March 13, 2014.
“Why Mises’s Praxeological Theories are not Necessarily True of the Real World,” March 15, 2014.
“Mises and Empiricism,” April 17, 2014.
“Mark Blaug was Right on Mises’ Method,” April 30, 2014.
“Why Should we reject the Existence of Synthetic a priori Knowledge?,” May 23, 2014.
“Detlev Schlichter on Mises’ Apriorism,” June 5, 2014.
“Robert Taylor versus David Ramsay Steele on Praxeology,” June 6, 2014.
“John Quiggin on Apriorism in Austrian Economics,” July 28, 2014.
“Hutchison on the History of Hayek’s Views on Economic Methodology,” August 2, 2014.
“Hayek on Prediction in the Social Sciences,” August 6, 2014.
“Are all Facts Theory-Laden?,” December 21, 2014.
“Walter Block’s An Austrian Critique of Mainstream Economics: A Critique on Epistemology,” October 8, 2015.

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Hoppe on Mass Immigration

For once he gets something right when he examines the views of open borders left libertarians and pro-open borders right-wing libertarians:

“Let us begin with a proposal made by the editors of the Wall Street Journal, the Cato Institute, the Foundation for Economic Education, and various left-libertarian writers of an ‘open’ or ‘no’ border policy—not because this proposal has any merit, but because it helps to elucidate what the problem is and what needs to be done to solve it.

It is not difficult to predict the consequences of an open border policy in the present world. If Switzerland, Austria, Germany or Italy, for instance, freely admitted everyone who made it to their borders and demanded entry, these countries would quickly be overrun by millions of third-world immigrants from Albania, Bangladesh, India, and Nigeria, for example. As the more perceptive open-border advocates realize, the domestic state-welfare programs and provisions would collapse as a consequence. This would not be a reason for concern, for surely, in order to regain effective protection of person and property the welfare state must be abolished. But then there is the great leap—or the gaping hole—in the open border argument: out of the ruins of the democratic welfare states, we are led to believe, a new natural order will somehow emerge.

The first error in this line of reasoning can be readily identified. Once the welfare states have collapsed under their own weight, the masses of immigrants who have brought this about are still there. They have not been miraculously transformed into Swiss, Austrians, Bavarians or Lombards, but remain what they are: Zulus, Hindus, Ibos, Albanians, or Bangladeshis. Assimilation can work when the number of immigrants is small. It is entirely impossible, however, if immigration occurs on a mass scale. In that case, immigrants will simply transport their own ethno-culture onto the new territory. Accordingly, when the welfare state has imploded there will be a multitude of ‘little’ (or not so little) Calcuttas, Daccas, Lagoses, and Tiranas strewn all over Switzerland, Austria, and Italy. It betrays a breathtaking sociological naiveté to believe that a natural order will emerge out of this admixture. Based on all historical experience with such forms of multiculturalism, it can safely be predicted that in fact the result will be civil war. There will be widespread plundering and squatterism leading to massive capital consumption, and civilization as we know it will disappear from Switzerland, Austria and Italy. Furthermore, the host population will quickly be outbred and, ultimately, physically displaced by their ‘guests.’ There will still be Alps in Switzerland and Austria, but no Swiss or Austrians.” (Hoppe 2002: 88–89).

And Hoppe, despite all his ranting about the state, knows well that multinational corporations and big business love mass immigration for economic reasons:

“Theoretically bankrupt, the left-libertarian open border stance can be understood only psychologically. One source can be found in the Randian upbringing of many left-libertarians. Big businessmen-entrepreneurs are portrayed as ‘heroes’ and, according to Ayn Rand in one of her more ridiculous statements, are viewed as the welfare state’s ‘most severely persecuted minority.’ In this view (and untainted by any historical knowledge or experience), what can possibly be wrong with a businessman hiring an immigrant worker? In fact, as every historian knows, big businessmen are among the worst sinners against private property rights and the law of the market. Among other things, in an unholy alliance with the central State they have acquired the privilege of importing immigrant workers at other people’s expense (just as they have acquired the privilege of exporting capital to other countries and being bailed out by taxpayers and the military when such investments turn sour).” (Hoppe 2002: 92–93, n. 23).

But here Hoppe gets it wrong: the “privilege of importing immigrant workers at other people’s expense” is not a “sin” against “private property rights and the law of the market,” but is wholly consistent with the laissez faire property-rights libertarianism of Austrian libertarianism. Rather, it is a violation of the collective economic and social interests of many people within society as a whole and a violation of sensible consequentialist ethical principles with respect to the well being of a society.

Furthermore, the trouble is, of course, that Hoppe’s mad world of libertarian “contractual communities” wouldn’t be much protection against this.

National governments, for all their faults, are the only effective barrier to, and serious check on, the power of private multinational corporations and big business. Hoppe’s desire to abolish the state would effectively leave the private corporate tyrannies – with their massive concentrations of capital, wealth and power – as the de facto government of advanced industrial societies.

History would suggest that hating, as they do, high wages, labour rights and the cost of first world labour, they would happily bring in millions of cheap, foreign and easily exploitable labour from the Third World even in Hoppe’s libertarian world, which would also bring about the catastrophe Hoppe predicts in the passage above.

To see this, we can look at 19th century Western colonies outside Europe (like, for example, America), at a time when the power of business was very strong. The late 19th century and early 20th century Labour parties, socialists, and trade unions in Western offshoots tended – despite streams of internationalist Marxism – to be vehemently opposed to mass immigration and this was often one of their central political struggles precisely because large sectors of big business were constantly in favour of mass immigration of Third World labour.

America is a case in point. By the late 19th century, American capitalists had resorted to a brutal system of near slave labour by importing Chinese immigrants (or “Coolies”) to exploit them for low wages under viciously exploitative conditions (see here and here; see also Saxton 1971).

Such indentured workers and their near slave-labour drove down wages for domestic American workers and caused competition for scarce jobs. This provoked an angry working class political movement, including, for example, the activism of the US labour leader Denis Kearney who organised the Workingmen’s Party of California in 1877, whose program included opposition to mass immigration.

Of course, it is well known that these movements also involved an ugly and strong racial bigotry, but the fact is there was no need for that element at all, and the primary objections of the socialists and union movements to mass immigration and virtual slave labour should have been limited to complaining about the devastating effects of mass immigration on the employment prospects and real wages of American workers and cultural issues.

BIBLIOGRAPHY
Hoppe, Hans-Hermann. 2002. “Natural Order, the State, and the Immigration Problem,” Journal of Libertarian Studies 16.1: 75–97.

Saxton, Alexander. 1971. The Indispensable Enemy: Labor and the Anti-Chinese Movement in California. University of California Press, Berkeley.

Hoppe on Euclidean Geometry, Part 2

Hoppe makes a series of bad arguments in his attempts to defend the concept of synthetic a priori knowledge:

“Further, the old rationalist claims that Euclidean geometry is a priori yet incorporates empirical knowledge about space becomes supported, too, in view of our insight into the praxeological constraints on knowledge. Since the discovery of non-Euclidean geometries and in particular since Einstein’s relativistic theory of gravitation, the prevailing position regarding geometry is once again empiricist and formalist. It conceives of geometry as either being part of empirical, a posteriori physics, or as being empirically meaningless formalisms. That geometry is either mere play or forever subject to empirical testing seems to be irreconcilable with the fact that Euclidean geometry is the foundation of engineering and construction, and that nobody in those fields ever thinks of such propositions as only hypothetically true. Recognizing knowledge as praxeologically constrained explains why the empiricist-formalist view is incorrect and why the empirical success of Euclidean geometry is no mere accident. Spatial knowledge is also included in the meaning of action. Action is the employment of a physical body in space. Without acting there could be no knowledge of spatial relations and no measurement. Measuring relates something to a standard. Without standards, there is no measurement, and there is no measurement which could ever falsify the standard. Evidently, the ultimate standard must be provided by the norms underlying the construction of bodily movements in space and the construction of measurement instruments by means of one’s body and in accordance with the principles of spatial constructions embodied in it. Euclidean geometry, as again Paul Lorenzen in particular has explained, is no more and no less than the reconstruction of the ideal norms underlying our construction of such homogeneous basic forms as points, lines, planes and distances which are in a more or less perfect but always perfectible way incorporated or realized in even our most primitive instruments of spatial measurements such as a measuring rod. Naturally, these norms and normative implications cannot be falsified by the result of any empirical measurement. On the contrary, their cognitive validity is substantiated by the fact that it is they that make physical measurements in space possible. Any actual measurement must already presuppose the validity of the norms leading to the construction of one’s measurement standards. It is in this sense that geometry is an a priori science and must simultaneously be regarded as an empirically meaningful discipline because it is not only the very precondition for any empirical spatial description, but it is also the precondition for any active orientation in space.” (Hoppe 2006: 287–288).

I have already dealt with the argument that “Euclidean geometry is the foundation of engineering and construction, and that nobody in those fields ever thinks of such propositions as only hypothetically true” in my post here. The fact that Euclidean geometry is highly useful in engineering and construction does not refute the epistemological status of applied geometry as synthetic a posteriori. And that people in “engineering and construction” might never think of Euclidean geometry as “only hypothetically true” or a mere approximation is irrelevant: it commits an appeal to invalid authority.

The second substantive point that Hoppe makes is that “Euclidean geometry … is no more and no less than the reconstruction of the ideal norms underlying our construction of such homogeneous basic forms as points, lines, planes and distances.” But geometry in that sense is analytic a priori and to assert that pure geometry cannot be refuted by experience is to assert a truth that even empiricists agree with.

Thirdly, the fact that we make measurements of real space – even non-Euclidean space – using Euclidean geometry and tools constructed with Euclidean geometry as a basis does not prove that Euclidean geometry is a universally and necessarily true theory of real space throughout the universe known a priori.

For example, a two-valued classical logic can be used to show that certain events described by quantum mechanics are not strictly subject to that same classical logic: rather, a non-classical logic is required for the quantum world. But the fact that we use two-valued classical logic as a basis for this does not prove that classical logic is a universally and necessarily true logic throughout all levels of reality in the universe. All that is presupposed is that classical logic is valid and sound in a specific domain: that of the ordinary macroscopic world that human beings inhabit. But even its validity in that domain must be ultimately judged a contingent fact about the universe.

Next, even though scientific instruments are constructed with Euclidean geometry (see Hoppe 2006: 288, n. 23), this does not prove what Hoppe thinks it does. That such instruments are indeed very useful is explained by the fact that Euclidean geometry is an approximation of the geometry of space in a limited domain: that is, a domain where there is only slight curvature of space in small dimensions and involving bodies of relatively small mass and negligible acceleration. But this is a contingent and a posteriori fact about the universe, not a necessary and a priori one.

We could in fact design and construct the same, or even better, tools or scientific instruments using non-Euclidean geometry, but the use of Euclidean geometry provides an easier shortcut because Euclidean geometry is a good approximation of limited small areas of space within the universe – a universe which nevertheless has a non-Euclidean geometry.

Rudolf Carnap explains:

“Our instruments occupy such tiny parts of space that the question of how our space deviates from Euclidean geometry does not enter into their construction. Consider, for example, a surveyor’s instrument for measuring angles. It contains a circle divided into 360 equal parts, but it is such a small circle that, even if space deviated from the Euclidean to a degree that Gauss hoped he could measure (a much greater degree than the deviation in relativity theory), it would still have no effect on the construction of this circle. In small regions of space, Euclidean geometry would still hold with very high approximation. This is sometimes expressed by saying that non-Euclidean space has a Euclidean structure in small environments. From a strict mathematical standpoint, it is a matter of a limit. The smaller the region of space, the closer its structure gets to the Euclidean. But our laboratory instruments occupy such minute portions of space that we can completely disregard any influence non-Euclidean space might have on their construction.” (Carnap 1966: 149).

But all these observations are empirical discoveries, not a priori truths.

BIBLIOGRAPHY
Carnap, Rudolf. 1966. Philosophical Foundations of Physics: An Introduction to the Philosophy of Science (ed. Martin Gardner). Basic Books, New York and London.

Hoppe, Hans-Hermann. 2006. The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy (2nd edn.), Ludwig von Mises Institute, Auburn, Ala.

Hoppe on Euclidean Geometry

Here is a poor reasoning at work:

“Further, the old rationalist claims that Euclidean geometry is a priori yet incorporates empirical knowledge about space becomes supported, too, in view of our insight into the praxeological constraints on knowledge. Since the discovery of non-Euclidean geometries and in particular since Einstein’s relativistic theory of gravitation, the prevailing position regarding geometry is once again empiricist and formalist. It conceives of geometry as either being part of empirical, a posteriori physics, or as being empirically meaningless formalisms. That geometry is either mere play or forever subject to empirical testing seems to be irreconcilable with the fact that Euclidean geometry is the foundation of engineering and construction, and that nobody in those fields ever thinks of such propositions as only hypothetically true.” (Hoppe 2006: 287–288).

On the contrary, that Euclidean geometry is highly useful in certain areas does not refute the epistemological status of applied geometry as synthetic a posteriori. And pure geometry remains analytic a priori and necessarily true and known a priori only when it is understood as a pure, non-empirical theory.

For how do human beings know that non-Euclidean, curved Riemannian geometry is a better theory of space-time, and that Euclidean geometry is actually only a useful approximation applicable to a certain domain? The answer is: empirically, not a priori.

And the fact that people in “engineering and construction” might never think of Euclidean geometry as “only hypothetically true” or a mere approximation is irrelevant: it commits an appeal to invalid authority.


BIBLIOGRAPHY
Hoppe, Hans-Hermann. 2006. The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy (2nd edn.), Ludwig von Mises Institute, Auburn, Ala.

Hoppe’s Caricature of Empiricism

In all its befuddled glory:

“I would like to challenge the very starting point of the empiricists’ philosophy. There are several conclusive refutations of empiricism. I will show the empiricist distinction between empirical and analytical knowledge to be plainly false and self-contradictory. That will then lead us to developing the Austrian position on theory, history, and forecasting.

This is empiricism’s central claim: Empirical knowledge must be verifiable or falsifiable by experience; and analytical knowledge, which is not so verifiable or falsifiable, thus cannot contain any empirical knowledge. If this is true, then it is fair to ask: What then is the status of this fundamental statement of empiricism? Evidently it must be either analytical or empirical.

Let us first assume it is analytical. According to the empiricist doctrine, however, an analytical proposition is nothing but scribbles on paper, hot air, entirely void of any meaningful content. It says nothing about anything real. And hence one would have to conclude that empiricism could not even say and mean what it seems to say and mean. Yet if, on the other hand, it says and means what we thought it did all along, then it does inform us about something real. As a matter of fact, it informs us about the fundamental structure of reality. It says that there is nothing in reality that can be known to be one way or another prior to future experiences which 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 falsification and whose truth can be established by an analysis of its terms alone, one has no less than a glaring contradiction at hand. Empiricism itself would prove to be nothing but self-defeating nonsense.

So perhaps we should choose the other available option and declare the fundamental empiricist distinction between empirical and analytical knowledge an empirical statement. But then the empiricist position would no longer carry any weight whatsoever. For if this were done, it would have to be admitted that the proposition – as an empirical one – might well be wrong and that one would be entitled to hear on the basis of what criterion one would have to decide whether or not it was. More decisively, as an empirical proposition, right or wrong, it could only state a historical fact, something like ‘all heretofore scrutinized propositions fall indeed into the two categories analytical and empirical.’ The statement would be entirely irrelevant for determining whether it would be possible to produce propositions that are true a priori and are still empirical ones. Indeed, if empiricism's central claim were declared an empirical proposition, empiricism would cease altogether to be an epistemology, a logic of science, and would be no more than a completely arbitrary verbal convention of calling certain arbitrary ways of dealing with certain statements certain arbitrary names. Empiricism would be a position void of any justification.” (Hoppe 2007: 33–34).

It would be difficult to pack so many non sequiturs and straw man arguments into so few paragraphs, but it is quite an achievement.

First, Hoppe conflates logical positivism, Popper’s Critical Rationalism, and other empiricist traditions. For instance, the (1) logical positivist verifiability criterion for meaningfulness is conflated with (2) Popper’s falsifiability criterion for scientific knowledge.

Secondly, Hoppe imputes to all his empiricist opponents a certain view of the logical positivists called the verifiability criterion for meaningfulness, but can’t even get that view right, and produces a garbled statement of it.

The logical positivists did not say that an analytic a priori statement is “scribbles on paper, hot air, entirely void of any meaningful content” or “self-defeating nonsense” at all. They said that of metaphysical propositions that were neither analytic a priori nor synthetic a posteriori, and that could not in principle be verified.

So the logical positivists did clearly think that mathematics and other valid analytic a priori statements had meaningful, cognitive content, although this content did not assert anything necessarily true about the real world. Moreover, Popper’s falsifiability criterion for scientific knowledge does not state that metaphysical propositions have no meaningful cognitive content, but only that they are not scientific statements.

And the fact is that the strict verifiability criterion for meaningfulness was quickly weakened and abandoned, and the type of empiricism defended in modern analytic philosophy has long since ceased to make any such extreme claims.

Then we have this:

“This is empiricism’s central claim: Empirical knowledge must be verifiable or falsifiable by experience; and analytical knowledge, which is not so verifiable or falsifiable, thus cannot contain any empirical knowledge. If this is true, then it is fair to ask: What then is the status of this fundamental statement of empiricism? Evidently it must be either analytical or empirical.”

And the answer is: that empiricist statement about epistemology is synthetic a posteriori.

But, when Hoppe considers this possibility, he commits a bizarre non sequitur:

“So perhaps we should choose the other available option and declare the fundamental empiricist distinction between empirical and analytical knowledge an empirical statement. But then the empiricist position would no longer carry any weight whatsoever. For if this were done, it would have to be admitted that the proposition – as an empirical one – might well be wrong and that one would be entitled to hear on the basis of what criterion one would have to decide whether or not it was. More decisively, as an empirical proposition, right or wrong, it could only state a historical fact, something like ‘all heretofore scrutinized propositions fall indeed into the two categories analytical and empirical.’ The statement would be entirely irrelevant for determining whether it would be possible to produce propositions that are true a priori and are still empirical ones. Indeed, if empiricism’s central claim were declared an empirical proposition, empiricism would cease altogether to be an epistemology, a logic of science, and would be no more than a completely arbitrary verbal convention of calling certain arbitrary ways of dealing with certain statements certain arbitrary names. Empiricism would be a position void of any justification.” (Hoppe 2007: 34).

According to Hoppe, just because the statement that

“Empirical knowledge must be verifiable or falsifiable by experience; and analytical knowledge, which is not so verifiable or falsifiable, thus cannot contain any empirical knowledge”

is synthetic a posteriori, then the “empiricist position” can “no longer carry any weight whatsoever,” and empiricism “would cease altogether to be an epistemology.”

Indeed, the defence of the original epistemological principle is empirical and its truth is only probable or highly probable, but the lack of certainty produces no such epistemological crisis for empiricism, for the reason that it never aimed at absolute necessary truth in the first place, as Hoppe demands. Our best scientific theories do not have apodictic truth, nor does the inductive method yield absolute certainty, yet modern science is incredibly successful.

The rejection of dogmatism and the willingness to regard any scientific theory as capable of revision or falsification are what give modern scientific epistemology its great strength.

But if we adopted the same type of argument used by Hoppe, then we must conclude that modern science must “no longer carry any weight whatsoever” and “would cease altogether to be an epistemology.”

Secondly, the legitimate response of an empiricist to a Rationalist that “all heretofore scrutinized propositions fall indeed into the two categories analytical and empirical” can be defended as true. Hoppe’s point here carries no weight.

We need only look at the way Kant’s original synthetic a priori knowledge, such as Euclidean geometry, necessary and deterministic causation, or certain laws of logic have either been refuted by modern science or seriously questioned.

Hoppe’s next statement that the empiricist’s classification of knowledge “would be entirely irrelevant for determining whether it would be possible to produce propositions that are true a priori and are still empirical ones” is also a non sequitur, since, on the contrary, it is a defensible starting point for analysing all statements and all future statements and determining whether they could possibly provide synthetic truth but be known a priori. If, for example, some Rationalist asserts that statement x is a synthetic a priori truth, but we discover that the real world produces overwhelming empirical evidence against the proposition, then it is the Rationalist who is faced with an epistemological crisis.

And of course Hoppe seems totally unaware of recent developments in analytic epistemology, such as the Kripkean necessary a posteriori or (more controversially) the contingent a priori, which expand the range of epistemological types of knowledge, but which are of no comfort to the traditional Rationalist.


BIBLIOGRAPHY
Hoppe, Hans-Hermann. 2007. Economic Science and the Austrian Method. Ludwig von Mises Institute, Auburn. Ala.

Hoppe on Fractional Reserve Banking: A Critique

In Hans-Hermann Hoppe, The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy (Boston and London, 1993), 205–254 (see also 175–204), we have various arguments against fractional reserve banking.

(1) In Hoppe (1993: 210ff.), we have the same tired and ignorant argument offered by other opponents of fractional reserve banking: that fiduciary media and fractional reserve banking involve exclusive ownership of one and the same thing at the same time. In fact, this is Hoppe’s central argument and it is plainly false.

Hoppe asserts that the issue and acceptance of a fiduciary note cannot signify the transfer of property from bank to client or vice versa (Hoppe 1993: 210). But Hoppe’s assertion that fiduciary media are “property titles” is utterly wrong. The private bank note or other fiduciary note is not a title to property left as a bailment (or depositum). Some of the earliest British goldsmith notes, forerunners of later private bank notes (or fiduciary media), were clearly negotiable credit/debt instruments payable on demand, with the statement “I promise to repay upon demand ...” demonstrating that these were IOUs or debt records, not certificates of bailment (Selgin 2011: 11; see Melton 1978 for examples of these goldsmith notes).

IOUs are acknowledgements of a debt owed, and negotiable instruments are the most important form of IOU in modern capitalism. They include (1) promissory notes and (2) bills of exchange. Promissory notes (or notes payable or simply notes) are a specific promise to pay, which are often negotiable debt instruments.

The bill of exchange (or sight or time draft) usually involves three parties, the drawer, the drawee and the payee. When the drawee (usually a bank) has agreed to provide credit to the drawer than the bill of exchange becomes a debt instrument used as a means of payment.

But even in a bill of exchange the drawer and drawee might be the same person and his promise to pay accepted by the payee on trust. In cases where the drawer/drawee has yet to obtain the money he will later use to honour his bill of exchange, we have a mere promise to pay, accepted as a fiduciary media and used as a means of payment.

If a bill of exchange is negotiable, then it may be transferred as a means of payment by the payee and used to obtain payment of the specified amount by the new holder (this is signified by adding the words “or order” after the name of the payee). Thus the bill of exchange is treated and used as money in the sense of being a means of payment and a medium of exchange. The same is true of negotiable promissory notes:

“the most usual form of a negotiable promissory note in England is: ‘£60 (or other sum). London, 1st Jany. 1860 (or other place or date). Two months after date (or on demand, or any other specified time), I promise to pay to Mr. A. B. or order fifty pounds, value received. (Signed) C. D.’ A more common form in America is: ‘New York, Jany. 1st, 1860. Value received, I promise to pay A. B. or order one thousand dollars in two months. C. D.’ But no especial form is necessary. The essential things are, a distinct promise, and sufficient certainty as to the payee, the payer, the amount, and the time of payment. And we must remember that the one purpose of all these certainties is to make the note, as far as the law can make it so, the absolute equivalent of money. As to the certainty of the payee, he may be either the original payee, or one who is made a payee by the indorsement of an original payee or of an indorsee; for every indorsee may become an indorser.” (Riply and Dana 1861: 167).

In principle, a negotiable bill of exchange or promissory note may pass from the original payee to a second, third and fourth party, and be used as a widely-accepted means of payment and medium of exchange in the community, and acting just like money. The private fractional reserve bank note functions in the same way, and the issue of bank money (or credit money), the negotiable bill of exchange and promissory note have all constituted the major manner in which an endogenous system of credit money is able to expand the money supply of a nation:

“About the end of the Sixteenth Century, the merchants of Amsterdam, Middleburgh, Hamburgh, and some other places, began to use instruments of credit among themselves, and as they came into personal contact, these documents naturally assumed the form of an acknowledgement of the debt by the debtor, with a promise to pay it to bearer on demand, at the time fixed. These documents were called bills obligatory, or of debt, or of credit, and were transferable by indorsement in all respects like Bills of Exchange.

These documents are now called Promissory Notes, and an English writer in the time of Charles I., Gerard Malynes, strongly advocated their introduction into England, but he saw that the Common Law prohibited it. They first began to be used by the goldsmiths, who, as shewn afterwards, originated the modern system of banking in England soon after 1640. They were then called goldsmiths' notes, but they were not recognised by law. The first promissory notes recognised by law were those of the Bank of England in 1694, which were, technically, bills obligatory, or of credit. By the Act founding the Bank, their notes were declared to be assignable by indorsement (Act, Statute 1694, c. 20, s. 29). But this did not extend to other promissory notes. In 1701 and 1703 it was decided that promissory notes were not assignable, or indorsable over, within the custom of merchants. In consequence of these decisions, the Act, Statute 1704, c. 8, was passed, by which it was enacted that promissory notes in writing, made and signed by any person or persons, body politic or corporate, or by the servant or agent of any corporation, banker, goldsmith, merchant, or trader, promising to pay any other person, any sum of money, should be assignable and indorsable over in the same manner as inland bills of exchange.

These promissory notes, of all sorts, including Bank of England notes, as well as the notes of private bankers and merchants, were all placed exactly on the same footing as inland bills of exchange, that is, they were all made transferable by indorsement on each separate transfer.

In the case however of bank notes (by which, in law, is always meant Bank of England notes), as these were always payable on demand, and the payment was quite secure, the practice of indorsement soon fell into disuse, and they passed from hand to hand like money. In the case of private bankers of great name, the indorsement was often omitted. But, though the ceremony of indorsement was often dispensed with as superfluous, it must be observed that in no way altered the character of the instrument, and the receiver of the note took it entirely at his own peril, and ran exactly the same risks as if he took any other instrument of credit without indorsement.” (Macleod 1866: 87–88; on the historical aspects of promissory notes and bill of exchanges, see Macleod 1866: 84–87).

In an historical sense, private bank notes (fiduciary media) were just like private promissory notes and bills of exchange: European legal systems have understood these as credit instruments, and they were not considered as mere property titles (that is, a receipt for a bailment). Fiduciary media are records of debt and the promise to repay a debt on demand or at a specified date: people can freely and voluntarily accept a debt instrument as a means of payment and medium of exchange, and the exchange involved is in no way fraud. We can see above that it was free contract and the business practices of the private sector that originated them.

If the practice of using negotiable promissory notes and bill of exchanges as money is acceptable, then there is no reason why private fractional reserve bank notes or credit money should be regarded as fraudulent or immoral, for they are in the same moral, legal and ontological category as these other debt instruments.

(2) With the collapse of Hoppe’s absurd claim that fiduciary media are “property titles, ” we are left with his gross ignorance and misunderstanding of the legal nature of the fractional reserve transactions account/checking account. This is sometimes misleadingly called the “demand deposit,” but such an account is not what is known as a depositum or bailment in legal terms. The fractional reserve transactions account is nothing but a debt instrument on the bank’s books (or these days on the bank’s computer system). There is never any initial “bailment” involved, contrary to Hoppe (1993: 218–219).

When the modern fractional reserve bank takes money for a new account, this is actually a personal loan to the bank, which is why the bank can pay interest for it. The money in the deposit becomes the property of the bank. The money is a loan, or legally a mutuum, which means “a contract under which a thing is lent which is to be consumed and therefore is to be returned in kind” (the modern sense of the English word “deposit” is thus misleading when it refers to money in fractional reserve banking). The depositor who lends the money gets a credit (or IOU) from the bank and a promise to pay interest: “the very essence of banking is to receive money as a [m]utuum” (MacLeod 1902: 318). The money has been “sold” to the bank as a mutuum and is to be returned in genere (“in general form”), which means you do not necessarily get the same money back, but just an equivalent amount. In fractional reserve transactions account, you have lost your property rights to the money when you lent it to the bank, and instead have entered into a contract with the bank to allow them to own and use your money, even though they are obliged to return to you on demand the debt they owe to the same amount, in whole or in part, from money from their other reserves, money from the sale of financial assets and their own other loans.

Appendix

There is relevant historical evidnce on the legal development of banknotes in a legal treatise by John A. Russell and David Maclachlan called Chitty on Bills of Exchange, Promissory Notes, Cheques on Bankers, Bankers' Cash Notes and Bank Notes (London, 1859):

“Bankers’ cash notes, which formerly circulated in the metropolis as goldsmiths’ notes, at a time when the only banking transactions in England were entirely in the hands of the goldsmiths, are in effect promissory notes. It appears from Lord Holt’s judgment in the case of Buller v. Crips, that these notes were introduced by the goldsmiths, about thirty years previously to the reign of Queen Anne, and were generally esteemed by the merchants as negotiable. But Lord Holt as strenuously opposed their negotiability as he did that of common promissory notes; and they were not generally settled to be negotiable until the statute of Anne was passed, which relates to these as well as to common promissory notes. They appear originally to have been given by bankers to their customers, as acknowledgments of money received for their use; and they may be, and generally are, payable to bearer. At present, cash notes are seldom issued except by country bankers, their use having been superseded by the introduction of cheques. When formerly issued by London bankers, they were sometimes called shop notes.” (Russell and Maclachlan 1859: 351-352).

In regarding bank notes and goldsmiths’ notes as promissory notes, we have explicit evidence here about how they were considered debt instruments, not certificates of bailment (or “property titles,” titles to property held as a bailment).

On the statute of Queen Anne (reigned 1702-1714), or the Act, Statute 1704, c. 8, see Melton (1986: 110-111).

BIBLIOGRAPHY

Hoppe, Hans-Hermann, 1993. The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy, Kluwer Academic Publishers, Boston and London.

Macleod, H. D. 1866. The Theory and Practice of Banking (2nd edn.), Longmans, Green, Reader, and Dyer, London.

MacLeod, H. D. 1902. Theory and Practice of Banking (6th edn), Longmans, Green, Reader, & Dyer, London.

Melton, Frank T. 1978. “Goldsmiths’ Notes, 1654–1655,” Journal of the Society of Archivists 6.1: 30–31.

Melton, Frank T. 1986. Sir Robert Clayton and the Origins of English Deposit Banking, 1658-1685, Cambridge University Press, Cambridge.

Redlich, F. 1970. “The Promissory Note as a Financial and Business Instrument in the Anglo-Saxon World: A Historical Sketch,” Revue Internationale d’Histoire de la Banque 3: 271-297.

Riply, G. and C. A. Dana (eds). 1861. “Negotiable Paper,” in The New American Cyclopaedia: A Popular Dictionary of General Knowledge, Vol. XII. Mozambique-Parr. D. Appleton and Company, New York. 165–170.

Rogers, J. S. 2004. The Early History of the Law of Bills and Notes: A Study of the Origins of Anglo-American Commercial Law, Cambridge University Press, Cambridge.

Russell J. A. and D. Maclachlan. 1859. Chitty on Bills of Exchange, Promissory Notes, Cheques on Bankers, Bankers’ Cash Notes and Bank Notes: With References to the Law of Scotland, France, and America (10th edn.), Henry W. Sweet, London.

Selgin, G. “Those Dishonest Goldsmiths,” revised January 20, 2011
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1589709