Was Mises a Socialist?: Why Mises Refutes Himself on Government Intervention

First, let me say that the title of this post is tongue-in-cheek (yes, Mises can hardly be considered a real socialist).

Many years ago, George J. Schuller reviewed the first edition of Mises’ Human Action (1949). Murray Rothbard (1951) wrote a reply to this review and in turn Schuller (1951) answered Rothbard’s criticisms. A re-reading of that exchange repays the effort involved.

As is well known, Ludwig von Mises argued that government intervention will always be inefficient and contrary to economic law. According to Mises, such intervention is unstable and will lead to chaos from which either socialism or capitalism will emerge (Rothbard 1951: 184; Ikeda 1998: 346; Mises 1997: 37–38).

Here is Mises’ definition of government intervention:

“The intervention is a decree issued directly or indirectly, by the authority in charge of society’s administrative apparatus of coercion and compulsion which forces the entrepreneurs and capitalists to employ some of the factors of production in a way different from what they would have resorted to if they were only obeying the dictates of the market. Such a decree can be either an order to do something or an order not to do something. It is not required that the decree be issued directly by the established and generally recognized authority itself. It may happen that some other agencies arrogate to themselves the power to issue such orders or prohibitions and to enforce them by an apparatus of violent coercion and oppression of their own. If the recognized government tolerates such procedures or even supports them by the employment of its governmental police apparatus, matters stand as if the government itself had acted. If the government is opposed to other agencies’ violent action, but does not succeed in suppressing it by means of its own armed forces, although it would like to suppress it, anarchy results” (Mises 1998 [1949]: 714–715).

Next we have Mises quite clearly giving his views on interventionism:

“the supporters of the most recent variety of interventionism, the German “soziale Marktwirtschaft [i.e., post-WWII social market economy in Germany],” stress that they consider the market economy to be the best possible and most desirable system of society’s economic organization, and that they are opposed to the government omnipotence of socialism. But, of course, all these advocates of a middle-of-the-road policy emphasize with the same vigor that they reject Manchesterism and laissez-faire liberalism. …. All these champions of interventionism fail to realize that their program thus implies the establishment of full government supremacy in all economic matters and ultimately brings about a state of affairs that does not differ from what is called the German or the Hindenburg pattern of socialism. If it is in the jurisdiction of the government to decide whether or not definite conditions of the economy justify its intervention, no sphere of operation is left to the market. Then it is no longer the consumers who ultimately determine what should be produced, in what quantity, of what quality, by whom, where, and how—but it is the government. For as soon as the outcome brought about by the operation of the unhampered market differs from what the authorities consider “socially” desirable, the government interferes. That means the market is free as long as it does precisely what the government wants it to do. It is “free” to do what the authorities consider to be the “right” things, but not to do what they consider the “wrong” things; the decision concerning what is right and what is wrong rests with the government. Thus the doctrine and the practice of interventionism ultimately tend to abandon what originally distinguished them from outright socialism and to adopt entirely the principles of totalitarian all-round planning” (Mises 1996: 723–724).

In this passage, Mises condemned the post-WWII mixed Keynesian economies that existed when Human Action was published. According to him, they would tend to “totalitarian all-round planning.” Thus interventionism of any type is ruled out. Presumably this was supposed to be a theory of Mises’ praxeology, which according to him would have “apodictic certainty.” If not, then this passage is clearly Mises’ own opinion that would need justification independently of his praxeology.

Rothbard characterised Mises’ position in his reply to Schuller as follows:

“When Mises presents us with the choice between the free market and socialism, he is saying that in-between systems of a hampered market are not coherent, consistent systems. He demonstrates that any measure of government intervention in the market creates problems and consequences which present the people with a further choice: repeal this measure, or effect another measure of governmental intervention …. interventionist measures logically lead to one or the other [sc. free market or socialism]. Since a socialist system cannot exist, the only intelligent choice is the purely free market. Since Mises demonstrates that every form of government intervention in the market creates consequences that lead to an economy worse than that of the free market, Schuller cannot distinguish between rational and irrational forms of government intervention … For Mises, all government intervention in the market is irrational and therefore contrary to economic law” (Rothbard 1951: 184).

In his reply to Rothbard on Mises’ view of interventionism, G. J. Schuller pointed out a fatal flaw and contradiction in Mises’ reasoning:

“What does ‘interventionist measures logically lead to’ mean? Either Mises believes that interventionism is cumulative and necessarily leads toward socialism and into ‘chaos’ (another undefined term), or he does not. If he does, can he explain how western nations reversed mercantilist intervention and established partially free markets in the 18th and 19th centuries, or how they accomplished partial decontrol after World Wars I and II? Can he explain how the purely free market is ever to be attained? On the other hand, if interventionism need not be cumulative (and Rothbard says it logically leads to the free market as well as to socialism) then is it necessarily incoherent, unstable, and transitory? If interventionism logically points in two opposite directions (toward zero and infinity), does it have to continue in either until it reaches respectively Elysium or chaos?” (Schuller 1951: 190).

Schuller makes a brilliant point here: there was massive mercantilist intervention in the early modern period in Europe. But this period did not end in “chaos” or “socialism”. There was mostly orderly reform of economic systems, as free trade or at least much less restrictive trade was adopted in the 19th century. Mises’ idea, if it is supposed to apply to conditions in the real world, is confronted with clear countervailing empirical evidence (of course, the pure Misesians will say that economic history is separate from praxeological theory and that empirical evidence can never verify or falsify praxeology, etc).

But, in addition, Mises has blatantly contradicted himself, because in Human Action (1949: 741) he argues that government intervention in the form of fire regulations can actually be justified:

“Economics neither approves nor disapproves of government measures restricting production and output. It merely considers it its duty to clarify the consequences of such measures. The choice of policies to be adopted devolves upon the people. But in choosing they must not disregard the teachings of economics if they want to attain the ends sought. There are certainly cases in which people may consider definite restrictive measures as justified. Regulations concerning fire prevention are restrictive and raise the cost of production. But the curtailment of total output they bring about is the price to be paid for avoidance of greater disaster. The decision about each restrictive measure is to be made on the ground of a meticulous weighing of the costs to be incurred and the prize to be obtained. No reasonable man could possibly question this rule” (Mises 1998 [1949]: 741; see Murphy and Gabriel 2008: 286 for a discussion of this passage).

Mises in the last remarks here is actually conceding that there is room for a system of intervention “on the ground of a meticulous weighing of the costs to be incurred and the prize to be obtained.” Some might argue that Mises only thought that individual interventions should be considered on the basis of “meticulous weighing.” But that will not do. Once Mises has conceded that interventions are possible and that there is a rule for allowing them, he has given us a system.

Mises’ remark that “no reasonable man could possibly question this rule” suggests that he himself agreed with it, and presumably with the idea of government fire regulations. And, even if he did not, he clearly allowed that the “choice of policies to be adopted devolves upon the people” in such cases. G. J. Schuller points out the devastating, fundamental contradiction here in Mises’ thought:

“If ‘all intervention is irrational,’ then how can Mises sanction it for ‘defense of the citizen against violent invasion of his person and property?’ Mises says: ‘The decision about each restrictive measure is to be made on the ground of a meticulous weighing of the costs to be incurred and the prize to be obtained.’ In fire regulations the prize outweighs the costs … Thus he admits that government interference in the private markets for armaments, mercenary soldiers, non-fireproofed buildings, or burglar’s equipment can attain the ends sought and need not lead to socialism. Once [Mises] … grants the distinction between intelligent and unintelligent intervention, and even the need for the former to preserve a partly free market economy, Mises leaves his sectarian Utopia and joins the rest of us in choosing among imperfect but possible alternatives in the real world” (Schuller 1951: 190).

Schuller is entirely correct. Government fire regulations are an obvious intervention even by Mises’ standards: such fire regulations require coercive government violation of private property rights and free markets, and the threat of force to maintain them.

Mises’ position is self-contradictory. In Human Action, Mises contends that intervention is unacceptable and will lead to socialism or chaos, but then makes it perfectly clear that there is room for what he thinks is intelligent and rational government intervention, which can be justified by “meticulous weighing of the costs to be incurred and the prize to be obtained.” This decision-making process is certainly also in the domain of democratic politics in a community. On this basis, one could easily construct a rational case for all manner of government interventions, from drug regulation and consumer protection all the way to Keynesian deficit spending.

Despite Mises’ argument that a system of intervention is inefficient and contrary to economic law and that such systems will lead to socialism or chaos, he actually allows for (and appears to advocate) his own particular system of government interventions!

Mises has left the back door of his praxeological system open to all types of intervention, a logical contradiction that is a massive hole in the anti-government ideology argued elsewhere in Human Action.

One might even say (tongue in cheek) that Mises’ logical inconsistency leaves him looking like a socialist in disguise.

Perhaps Austrian economists should start writing articles attacking their beloved hero with titles such as “Mises was a Red”! (after all, Rothbard did something like that for Ayn Rand - and rather well too).


BIBLIOGRAPHY

Ikeda, S. 1998. “Interventionism,” in P. J. Boettke (ed.), The Elgar Companion to Austrian Economics, Elgar, Cheltenham, UK. 345–351.

Mises, L. 1977. A Critique of Interventionism (trans. H. F. Sennholz), Arlington House, New Rochelle, N.Y.

Mises, L. 1996. Human Action: A Treatise on Economics (4th rev. edn), Fox and Wilkes, San Francisco.

Mises, L. 1998 [1949]. Human Action: A Treatise on Economics, Ludwig von Mises Institute, Auburn, Ala.

Murphy, R. P. and A. Gabriel, 2008. Study Guide to Human Action: A Guide Tutorial of Ludwig von Mises’s Classic Work, Ludwig von Mises Institute, Auburn, Ala.

Rothbard. M. N. 1951. “Mises’ ‘Human Action’: Comment,” American Economic Review 41.1: 181–185.

Schuller, G. J. 1950. Review of Human Action: A Treatise on Economics by Ludwig von Mises, American Economic Review 40.3: 418–422.

Schuller, G. J. 1951. “Mises’ ‘Human Action’: Rejoinder,” American Economic Review 41.1: 185–190.

Mises’ Praxeology: A Critique

The praxeological system of Ludwig von Mises (1881–1973) continues to be popular in the Austrian school of economics, and Hans-Hermann Hoppe is a recent advocate of praxeology as a methodology for economic science (see Hoppe 2007).

In this post, I present a critique of Mises’ praxeology. First, we should note two important caveats: (1) even historically, praxeology was not accepted by all Austrians: Schumpeter used a positivist methodology for Austrian economics (Allen 1991: 42), and it appears that Hayek never really accepted Mises’ apriorism at all (see Appendix 2 below); and (2) a number of self-described Austrian economists today do not follow Mises’ praxeology in its pure form, and some are even critical of praxeology and offer different methodologies for Austrian economic analysis (Caldwell 1984: 118 and 137, n. 45; Egger 1978). For example, Israel Kirzner appears to have taken a more pragmatic approach to Austrian methodology (Caldwell 1984: 137, n. 45) and D. Lavoie (1986) criticised rigid Misesian praxeology from the perspective of modern hermeneutics.⁽¹⁾ In particular, Gerald P. O’Driscoll and Mario J. Rizzo have offered a reconstructed Austrian methodology in their book The Economics of Time and Ignorance (1985; rev. edn 1996), which appears to allow some role for empirical testing of interpretive theories to see whether they apply to the real world (see also Rizzo 1982 for a proposed Lakatosian reform of Austrian economics). O’Driscoll and Rizzo’s modified Austrian methodology drew fire from older Misesians. ⁽²⁾ I note that other libertarians such as James M. Buchanan (1987: 74–74) and Robert Nozick (1977) have offered critiques of Mises’ praxeology as well (cf. Block 1980 for a response to Nozick).

What is Mises’ praxeology?

Mises regarded economics as the study of human choice under conditions of scarcity. He thought that the correct methodology for the study of economics was praxeology. Praxeology, the study of human action, was also the method to be used in all other social sciences, and not just in economics. Mises thus rejected as invalid any empirically-based methodology for economics. He believed that the foundational idea for his system of praxeology was the human action axiom. This proposition is that all human action is rational because all action is by definition purposeful (the word rational is here defined as “purposeful”). Mises argued that the human action axiom was a synthetic a priori proposition. Synthetic a priori propositions were a type of proposition proposed by Kant. As Ludwig M. Lachmann has argued,

“Mises drew his inspiration from … the Neo-Kantian philosophy that dominated academic Germany in the first decade of … [the 20th century]” (Lachmann 1976: 56).

But it can also be noted that there is some dispute about Mises’ view of the logical status of his starting axioms. D. Gordon (1996) argues that Mises uses the expression “synthetic a priori” to refer to a necessarily true proposition that is not a tautology. Hans Albert (1999: 131) argues that Mises’ statements about aprioristic reasoning are confused. Some have even detected an influence on Mises from Husserl’s phenomenology (Addleson 1995: 100).

As in any a priori argument, in Misesian theory the inferences drawn from starting axioms by deductive logic are necessarily true or apodictically certain. No empirical evidence is necessary to demonstrate the truth of Mises’ theories, as the truth of the inferences is necessarily known in advance of experience. Even when the real world provides significant countervailing empirical evidence contradicting an inference in Mises’ system, it is irrelevant and can be explained away (Barry 1986: 60). Mises called for methodological dualism, which is the idea that the methodology of the natural sciences is fundamentally different from that of the social sciences (note that some scholars claim that Hayek apparently abandoned this idea of methodological dualism after 1952). As Mises says,

[sc. praxeology] aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification and falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts. They are a necessary requirement of any intellectual grasp of historical events (Mises 1998 [1949]: 32).

A reading of Human Action shows that Mises firmly held that empirical evidence can never verify or falsify the inferences of praxeology:

“Praxeology is a theoretical and systematic, not a historical, science. Its scope is human action as such, irrespective of all environmental, accidental, and individual circumstances of the concrete acts. Its cognition is purely formal and general without reference to the material content and the particular features of the actual case. It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts” (Mises 1949: 32).

“Even the most faithful examination of a chapter of economic history, though it be the history of the most recent period of the past, is no substitute for economic thinking. Economics, like logic and mathematics, is a display of abstract reasoning. Economics can never be experimental and empirical. The economist does not need an expensive apparatus for the conduct of his studies. What he needs is the power to think clearly and to discern in the wilderness of events what is essential from what is merely accidental” (Mises 1949: 864).

“What assigns economics its peculiar and unique position in the orbit both of pure knowledge and of the practical utilization of knowledge is the fact that
its particular theorems are not open to any verification or falsification on the ground of experience. Of course, a measure suggested by sound economic reasoning results in producing the effects aimed at, and a measure suggested by faulty economic reasoning fails to produce the ends sought. But such experience is always still historical experience, i.e., the experience of complex phenomena. It can never, as has been pointed out, prove or disprove any particular theorem. The application of spurious economic theorems results in undesired consequences. But these effects never have that undisputable power of conviction which the experimental facts in the field of the natural sciences provide. The ultimate yardstick of an economic theorem’s correctness or incorrectness is solely reason unaided by experience” (Mises 1949: 858).

As Rothbard said, “Mises indeed held not only that economic theory does not need to be ‘tested’ by historical fact but also that it cannot be so tested” (Rothbard 1997: 72). Despite Mises’ view that empirical data can never verify praxeological theories, we find modern Austrians frequently invoking empirical evidence as if it verifies Austrian theories. But, as Mises argued, empirical data, even if they appear to support the inferences of praxeology, do not in any sense verify praxeological inferences. This means that any Austrian who invokes empirical evidence that appears to confirm the inferences of praxeology, or who implies that such evidence supports Misesian theory, has in fact not verified those inferences in any way. Consequently, there seems to be little point in the use of empirical data by Misesians.

Is Misesian praxeology defensible? Are there flaws in it? I argue below that there are fatal flaws in praxeology.

Mises thought that only criticisms of the verbal chain of logic in his arguments could refute the theorems of praxeology. Thus empirical evidence is irrelevant. Another way to put this is that Mises’ theories are not falsifiable empirically, and Misesian praxeology is radically different from Karl Popper’s falsificationist methodology for scientific knowledge (for the view that economics should embrace Popperian methodology, see Blaug 1980). Many economists who think that Popper’s falsificationism provides the best methodology for discovering genuine, new knowledge about the real world look upon Mises’ praxeology as a deeply flawed system (Blaug 1992: 80–82), and this is a view I am sympathetic to. Certainly Austrian economics has been accused of intellectual stagnation for failing to take empirical research seriously (Paqué 1985: 426).

Mises’ praxeology is a system that is a perfect example of apriorism. There is no reason to believe that apriorism provides a consistent and reliable method for obtaining true theories about the real world. Praxeology has obvious affinities with the theories of the great rationalist system-builders of the early modern period, like Descartes, Spinoza and Leibniz, whose systems, as we now know, were utterly false (Bunge 1998: 209). For example, Leibniz’s monadology was an elaborate theory arrived at by aprioristic argument – but completely refuted by modern science. There is, then, no reason in principle why aprioristic systems must always be considered as consistently reliable and true ways of obtaining knowledge about the real world: many such systems have turned out to be false, and Mises’ praxeology could possibly be another such failed system, if we can show this convincingly by external and internal criticism.

B. J. Caldwell (1984) has pointed out that the best refutation of praxeology is by internal criticism. Mises himself recognised that such internal criticism of praxeology’s “chain of deductions” and “assumptions” was a valid way of refuting its inferences:

“From the unshakable foundation of the category of human action praxeology and economics proceed step by step by means of discursive reasoning. Precisely defining assumptions and conditions, they construct a system of concepts and draw all the inferences implied by logically unassailable ratiocination. With regard to the results thus obtained only two attitudes are possible; either one can unmask logical errors in the chain of the deductions which produced these results, or one must acknowledge their correctness and validity” (Mises 1949: 67).

“Man … can never be absolutely certain that his inquiries were not misled and that what he considers as certain truth is not error. All that man can do is to submit all his theories again and again to the most critical reexamination. This means for the economist to trace back all theorems to their unquestionable and certain ultimate basis, the category of human action, and to test by the most careful scrutiny all assumptions and inferences leading from this basis to the theorem under examination. It cannot be contended that this procedure is a guarantee against error. But it is undoubtedly the most effective method of avoiding error” (Mises 1949: 68).

“Every theorem of praxeology is deduced by logical reasoning from the category of action. It partakes of the apodictic certainty provided by logical reasoning that starts from an a priori category. Into the chain of praxeological reasoning the praxeologist introduces certain assumptions concerning the conditions of the environment in which an action takes place. Then he tries to find out how these special conditions affect the result to which his reasoning must lead. The question whether or not the real conditions of the external world correspond to these assumptions is to be answered by experience. But if the answer is in the affirmative, all the conclusions drawn by logically correct praxeological reasoning strictly describe what is going on in reality” (Mises 1978: 44).

Cleary even Mises himself admitted that synthetic propositions as auxiliary hypotheses entered into his praxeological deductive reasoning. If such assumptions do not correspond to the “real conditions of the external world,” then his inferences are unsound and untrue.

In Human Action (Mises 1949: 65–68) and The Ultimate Foundation of Economic Science (Mises 1978 [1962]: 44), Mises thus concedes that praxeology’s deductive reasoning will sometimes rely on some empirical assumptions, although these are (allegedly) generally accepted or obvious (Rizzo 1982: 64).

But synthetic propositions as premises in deductive arguments must be sufficiently justified (see Appendix 3 below for a simple example of a valid but unsound syllogism), and this is precisely what can make Mises’ arguments unsound and threaten the truth of his inferences. And there are of course numerous specific critiques of Mises’ praxeology from such an internal perspective. My discussion below is based in part on Caldwell 1984 and 1985.

There are four main ways in which praxeology can be criticised:

(1) questioning the truth of Mises’ axioms;
(2) showing flaws in the verbal chain of logic used to draw the inferences arrived at in praxeology.
(3) demonstrating unjustified subsidiary propositions or hidden assumptions in Mises’ reasoning that invalidate his conclusions, and
(4) the question of how to choose between competing praxeological systems derived by a priori deduction from (allegedly) certain starting axioms.

I want to focus on points (2), (3) and (4) in my discussion below.

I. (2) and (3): Unjustified subsidiary and hidden assumptions in Mises’ Praxeology The deductive method in Mises’ Human Action (1949) uses subsidiary propositions and hidden assumptions, which must be true for the deductive argument to work and apply to the real world. Already in 1951, G. J. Schuller had pointed out that the deductive arguments in Mises’ Human Action used many unstated/hidden assumptions:

“Are the praxeological axioms universally and incontestably true in the same sense as the laws of logic? The denial of the laws (or rules) of logic results in absurdity. The denial of Mises’ laws does not … The higher a deductive edifice is built, the more numerous are the syllogistic steps required in its construction and the more numerous are the assumptions (stated or implied) on which the structure rests. The probability of error (except for supermen) increases with both” (Schuller 1951: 186).

“Acceptance of Mises’ stated axioms does not necessarily imply acceptance of the “principles” or “applications to reality” which he has drawn from them even though his logic may be impeccable. When a logical chain grows beyond the limits set by stated assumptions, it uses unstated assumptions. The number of unstated assumptions (axioms, postulates, or other) in Human Action is enormous. If Mises denies this, let him try to rewrite his book as a set of numbered axioms, postulates, and syllogistic inferences using, say, Russell’s Principia” (Schuller 1951: 188).

More recently, M. Blaug has criticised Mises’ system by giving specific examples of these hidden assumptions:

“[sc. there is a] the fundamental flaw in Ludwig von Mises’ ‘praxeology’: [sc. it is] the notion that purposive choice as a Kantian ‘a priori synthetic proposition’ is more than sufficient to account for negatively inclined demand curves. This ignores the fact that a number of a posteriori auxiliary propositions are also required, such as transitivity or consistency of choices ... To this day, this failure to recognize the limited power of a priori synthetic propositions to generate substantive implications for economic behaviour characterises neo-Austrian writings in defence of Mises” (Blaug 1994: 132–133, n. 14; see also Blaug 1997: 332ff.).

W. Meyer has also shown how Mises does not even follow his own methodology consistently, and how Mises assumed various unproven hypotheses about expectations and information in free market economies, hypotheses which cannot be derived deductively from the axiom of human action (Meyer 1987; see also Albert 1999: 133 and Meyer 1980: 82–91; Albert 1980, which offers a critique of Mises, appears to be unpublished; see also Gutiérrez 1971 for a critique for Rothbard’s praxeology; on problems with Mises’ theory of money, see Meyer 1987; Albert 1999: 132). Meyer proposes a completely reformed Austrian methodology that uses Popperian falsificationism (Meyer 2002: 278).

Bruce J. Caldwell also notes that Mises requires subsidiary hypotheses to apply his praxeological system to the real world. These hypotheses appear to be synthetic, and subject to empirical confirmation or falsification. One such hypothesis is the “disutility of labor for all humans” (Caldwell 1984: 376), and even Mises himself admitted that the disutility of labour was not an a priori axiom:

“The disutility of labor is not of a categorial and aprioristic character. We can without contradiction think of a world in which labor does not cause uneasiness, and we can depict the state of affairs prevailing in such a world …. Experience teaches that there is disutility of labor. But it does not teach it directly. There is no phenomenon that introduces itself as disutility of labor. There are only data of experience which are interpreted, on the ground of aprioristic knowledge, to mean that men consider leisure—i.e., the absence of labor—other things being equal, as a more desirable condition than the expenditure of labor. We see that men renounce advantages which they could get by working more—that is, that they are ready to make sacrifices for the attainment of leisure. We infer from this fact that leisure is valued as a good and that labor is regarded as a burden. But for previous praxeological insight, we would never be in a position to reach this conclusion” (Mises 1949: 65).

A specific and important praxeological argument that can be refuted by false hidden assumptions is Mises’ argument for free trade by comparative advantage (or the “Ricardian law of association”), given in Human Action: A Treatise on Economics (4th edn, 1996), pp. 159–164. On this, see my separate post “Mises on the Ricardian Law of Association: The Flaws of Praxeology” (January 25, 2011).

It is clear from all this that Mises’ praxeology does have severe flaws in its verbal chain of logic and argumentation. When unreal or false subsidiary hypotheses are used in an a priori argument, the resulting inferences do not describe the world in which we actually live. That is, any conclusions that are necessarily drawn by deduction will only be true of the imaginary world where one’s subsidiary hypotheses are hypothetically true. But that imaginary world is not the real world we know and live in. It is a fantasy world.

II. (4): What about other a priori systems? Another problem for Misesian economics is that it is not the only praxeological system. The fact is that there are a number of other systems of thought that are (allegedly) derived by deduction from universally true axioms. How do we choose between such systems? (Prychitko 1998: 81). For example, Marxists like M. Hollis and E. J. Nell have propounded a system using deduction from (allegedly) universally true axioms in their book Rational Economic Man (1975). Their system is the antithesis of Mises’ Austrian economics, but supposedly arrives at laws which are universally true. In other words, when competing praxeological systems are encountered, what method is available to the Austrian praxeologist to choose between them?

Conclusion For all these reasons, it is clear that Mises’ praxeology has fatal flaws. The alleged apodictic certainty that is claimed for the laws and inferences of Misesian praxeology actually vanish under closer inspection. The most devastating problem is that, when Mises’ arguments are examined, it can be seen that his a priori reasoning often relies on assumed synthetic propositions that are probably false. In this case, the inferences of praxeology simply do not apply to the real world in which we live. Instead, when Austrian economists make unrealistic assumptions and then use a priori reasoning to draw inferences using these false propositions, their conclusions might well have necessary truth, but only when applied to the imaginary, fantasy world where those assumptions might hypothetically hold. In other words, the inferences of praxeology describe a world which is as imaginary and non-existent as the merry old land of Oz.

Those who advocate the use of an empirical or Popperian methodology for economics have solid and independent reasons for rejecting the praxeology of Mises as well.
Moreover, it appears that some modern academic Austrians have moved beyond Mises, and have argued that Austrian economics needs to formulate hypotheses allowing prediction and subject to empirical testing. If this trend continues, Austrian method will converge with mainstream methodology, and it is quite possible that the Misesians might one day become a minority even in their own school.


APPENDIX 1: MISES’ ETHICS

I note that Mises has a subjectivist view of ethics and rejected natural law ethics:

“There is, however, no such thing as natural law and a perennial standard of what is just and what is unjust. Nature is alien to the idea of right and wrong. “Thou shalt not kill” is certainly not part of natural law. “Thou shalt not kill” is certainly not part of natural law. The characteristic feature of natural conditions is that one animal is intent upon killing other animals and that many species cannot preserve their own life except by killing others. The notion of right and wrong is a human device, a utilitarian precept designed to make social cooperation under the division of labor possible. All moral rules and human laws are means for the realization of definite ends. There is no method available for the appreciation of their goodness or badness other than to scrutinize their usefulness for the attainment of the ends chosen and aimed at” (Mises 1998 [1949]: 716).

Mises did not believe that his system of praxeology was derived from any ethical theory. In fact, praxeology was independent of ethics, and its alleged “objectivity” was the result of its being “value-free’ (or wertfrei, in German). Nevertheless, in ethics, Mises was a utilitarian (Yeager 1998: 328).


APPENDIX 2: DID HAYEK EVER ACCEPT MISES’ APRIORISM?

It appears that in an article called “Economics and Knowledge” (1937) Hayek criticised Mises’ apriorism. But there is debate about whether Hayek ever accepted an aprioristic methodology, and to what extent he was influenced by Popperian methodology.

Terence W. Hutchison divided Hayek’s thought on economic methodology into two periods that might be called Hayek I (before 1937) in which Hayek adopted the a priori/apodictic view of Mises’ praxeology, and Hayek II (post-1937) where he was more open to empirical evidence and was influenced by Popperian falsificationism (Ebenstein 2001: 158). J. Gray (1998: 17–18) argues that Hayek never accepted Mises’ pure praxeological method. In a letter that Hayek wrote to Terence W. Hutchison dated 15 May, 1983, Hayek stated:

“I had never accepted Mises’ a priorism .... Certainly 1936 was the time when I first saw my distinctive approach in full clarity – but at the time I felt it that I was merely at last able to say clearly what I had always believed – and to explain gently to Mises why I could not ACCEPT HIS A PRIORISM” (quoted in Caldwell 2009: 323–324).

APPENDIX 3

In any a priori argument, one must be aware of the difference between validity, soundness and truth. For example, consider the following argument:

Major premise: All elephants are pink.
Minor premise: Nellie is an elephant.
Conclusion: Therefore, Nellie is pink.

This is a formally valid syllogism. Validity concerns the form of the argument. The argument is valid because it is a correct form of the modus ponens. If one accepts the truth of the major and minor premise, then a priori/deductive reasoning will yield a conclusion that follows with apodictic certainty.

However, the trouble with the syllogism is that it is unsound. Soundness in argument depends not just on validity but also on the truth of premises. This syllogism has a major premise that is false. The major premise is a synthetic proposition, which must be justified by empirical evidence. A false premise yields a false conclusion and, while the argument is still formally valid, the inference is untrue and does not apply to the real world.

FOOTNOTES

⁽¹⁾ There appears to be a “hermeneutic” tradition of Austrian economics. Koppl (2005: 8–9 and 2008 107–111) argues that the Austrian economist Lavoie adopts “universal hermeneutics” in the tradition of Heidegger, Gadamer and Ricoeur, and contends that “classical hermeneutics” (in the tradition of Dilthey and Max Weber) is to be distinguished from this later, more extreme tradition of hermeneutics.

⁽²⁾ I will quote Murray N. Rothbard’s view of the methodology of O’Driscoll and Rizzo: “The Economics of Time and Ignorance was a fortunately short-lived attempt to replace the Misesian paradigm with Bergsonian irrationalism … In the course of writing that work, Professor Rizzo, the philosophical leader of the duo, was moving visibly away from the Misesian paradigm. In a Mises centennial volume edited by Israel Kirzner, Rizzo first flirted with the then-fashionable philosophy of science of Imre Lakatos as a replacement for praxeology; in a postscript written a mere six months after the text, Rizzo announced another radical change of mind even further away from Mises. The final result in 1985 was the Bergsonian dead-end.”

BIBLIOGRAPHY

Addleson, M. 1995. Equilibrium versus understanding: towards the restoration of economics as social theory, Routledge, London and New York.

Albert, H. 1980. Gesetz und Erfahrung in den Sozialwissenschaften: Wider den Misesschen Apriorismus, unpublished, May 1980.

Albert, H. 1999. Between Social Science, Religion and Politics: Essays in Critical Rationalism, Rodopi, Amsterdam.

Allen, R. L. 1991. Opening Doors: The Life and Work of Joseph Schumpeter (vol. 2), Transaction Publishers, New Brunswick, N.J.

Barry, N. P. 1984. “The Austrian Perspective,” in D. K. Whynes (ed.), What is political economy?: Eight Perspectives, Martin Robertson, Oxford. 33–58.

Barry, N. P. 1986. On Classical Liberalism and Libertarianism, Macmillan, Basingstoke.

Blaug, M. 1992. The Methodology of Economics, or, How Economists Explain, Cambridge University Press, Cambridge and New York, NY.

Blaug, M. 1994. “Why I am not a Constructivist: Confessions of an Unrepentant Popperian,” in R. E. Backhouse (ed.), New Directions in Economic Methodology, Routledge, London and New York. 109–136.

Blaug, M. 1997. Economic Theory in Retrospect, Cambridge University Press, Cambridge and New York.

Block, W. 1973. “A Comment on ‘The Extraordinary Claim of Praxeology’ by Claudio Gutierrez,” Theory and Decision 3: 377–387.

Block, W. 1980. “On Robert Nozick’s ‘On Austrian Methodology,’” Inquiry 23: 397–444.

Buchanan, J. M. 1987. Economics: Between Predictive Science and Moral Philosophy, Texas A & M University Press, College Station.

Bunge, M. A. 1998. Philosophy of Science, From explanation to justification, Volume 2 (rev. edn), Transactions Publishers, New Brunswick, NJ.

Caldwell, B. J. 1984. “Praxeology and its Critics: An Appraisal,” History of Political Economy 163: 363–379.

Caldwell, B. J. 1985. Beyond Positivism: Economic Methodology in the Twentieth Century, G. Allen and Unwin, London and Boston.

Caldwell, B. 2009. “A Skirmish in the Popper Wars: Hutchison versus Caldwell on Hayek, Popper, Mises, and methodology,” Journal of Economic Methodology 16.3: 315–324.

Ebenstein, A. 2001. Friedrich Hayek: A Biography, Palgrave, New York.

Egger, J. B. 1978. “The Austrian Method,” in L. M. Spadaro (ed.), New Directions in Austrian Economics, Sheed, Andrews and McMee, Kansas City. 19–39.

Gordon, D. 1996. “The Philosophical Origins of Austrian Economics,” Ludwig von Mises Institute, http://mises.org/philorig.as

Gray, J. 1998. Hayek on Liberty(3rd edn), Routledge, London and New York.

Gutiérrez, C. 1971. “The Extraordinary Claim of Praxeology,” Theory and Decision 1.4: 327–376.

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

Hutchison, T. 1981. The Politics and Philosophy of Economics: Marxians, Keynesians and Austrians, Blackwell, Oxford.

Hutchison, T.W. 1994. The Uses and Abuses of Economics: Contentious Essays on History and Method, Routledge, London and New York.

Koppl, R. 2005. Evolutionary Psychology and Economic Theory, Emerald Group Publishing, Burlington.

Koppl, R. 2008. Explorations in Austrian Economics, Emerald Group Publishing, Bradford.

Lachmann, L. M. 1976. “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society,” Journal of Economic Literature 14.1: 54-62.

Lavoie, D. 1986. “Euclideanism versus Hermeneutics: a reinterpretation of Misesian apriorism,” in I. M. Kirzner (ed.), Subjectivism, Intelligibility and Economic Understanding: Essays in Honor of Ludwig M. Lachmann on his Eightieth Birthday, Macmillan, London. 192–210.

Meyer, W. 1980. “Erkenntnistheoretische Orientierungen und der Charakter des ökonomischen Denkens,” in E. Streissler and C. Watrin (eds), Zur Theorie marktwirtschaftlicher Ordnungen, Mohr, Tübingen.

Meyer, W. 1981. “Ludwig von Mises und das subjektivistische Programm,” Wirtschaftspolitische Hätter 4: 35–50.

Meyer, W. 2002. Grundlagen ökonomischen Denkens, Mohr Siebeck, Tubingen.

Mises, L. 1978 [1962]. The Ultimate Foundation of Economic Science: An Essay on Method (2nd edn, Sheed Andrews & McMeel, Kansas City.

Mises, L. 1998 [1949]. Human Action: A Treatise on Economics, Ludwig von Mises Institute, Auburn, Ala.

Nozick, R. 1977. “On Austrian Methodology,” Synthese 36: 353–392.

O’Driscoll, G. P. and M. J. Rizzo, 1996. The Economics of Time and Ignorance (rev. edn), Routledge, London.

O’Sullivan, P. J. 1987. Economic Methodology and Freedom to Choose, Allen & Unwin, London.

Paqué, K.-H. 1985. “How Far is Vienna from Chicago? An Essay on the Methodology of Two Schools of Dogmatic Liberalism,” Kyklos 38.3: 412–434.

Peukert, H. K. 1998. Das Handlungsparadigma in der Nationalökonomie (Das Handlungsparadigma in der Nationalökonomie. Kapitel V), Metropolis-Verlag, Marburg.

Pheby, J. 1988. Methodology and Economics: A Critical Introduction, Macmillan, Basingstoke.

Praxeology: Reading List, Mises.org
http://mises.org/Community/forums/t/762.aspx

Prychitko, D. L. 1998. “Praxeology,” in P. J. Boettke (ed.), The Elgar companion to Austrian economics, Elgar, Cheltenham, UK. 77–83.

Rizzo, M. J. 1982. “Mises and Lakatos: a Reformulation of Austrian Methodology,” in I. Kirzner (ed.), Method, Process, and Austrian Economics, D. C. Heath, Lexington, 53–73.

Rothbard, M. N. 1992. “The Present State of Austrian Economics,” Working Paper from the Ludwig von Mises Institute, November 1992, http://mises.org/etexts/presentstate.pdf

Rothbard, M. N. 1997. The Logic of Action one, Method, money, and the Austrian School, Edward Elgar, Cheltenham.

Schuller, G. J. 1951. “Mises’ ‘Human Action’: Rejoinder,” American Economic Review 41.1: 185–190.

Selgin, G. A. 1990. Praxeology and Understanding: An Analysis of the Controversy in Austrian Economics, Ludwig von Mises Institute, Auburn University, Auburn, Ala.

Tokumaru, N. 2009. “Popper’s Analysis of the Problems of Induction and Demarcation and Mises’ Justification of the Theoretical Social Sciences,” in Z. Parusnikova and R. S. Cohen, Rethinking Popper, Springer, Dordrecht and London.

Yeager, L. B. 1998. “Utilitarianism,” in P. J. Boettke (ed.), The Elgar companion to Austrian economics, Elgar, Cheltenham, UK. 328–336.