Book Review: “The Ultimate Foundation of Economic Science” – Ludwig von Mises

In this essay, published in 1962, Mises elaborates in depth what praxeology means, what implications it has for the study of human action, and criticizes doctrines contradictory to the praxeological method (especially logical positivism).

Mises takes complete distance from the classical characterization of man as “Homo oeconomicus” (that is, a purely self-interested and rational person), and rather says that it’s more of a “Homo agens, the acting animal,” because, according to Mises, “The characteristic feature of man is precisely that he consciously acts (p. 4),” by which he means “to strive after ends, that is, to choose a goal and to resort to means in order to attain the goals sought (p. 5).”

I’m sure many would dispute the claim that only humans behave in this way (see, for instance: “Are We Smart Enough to Know How Smart Animals Are” by Frans de Waal), but he later elaborates the distinction more convincingly in that “Animals are forced to adjust themselves to the natural conditions of their environment; if they do not succeed in this process of adjustment, they are wiped out. Man is the only animal that is able within definite limits—to adjust his environment purposively to suit him better (p. 8).” And later, “What elevates man above all other animals is the cognition that peaceful cooperation under the principle of the division of labor is a better method to preserve life and to remove felt uneasiness than indulging in pitiless biological competition for a share in the scarce means of subistence [sic] provided by nature (p. 97).”

Nonetheless, even if these distinctions were wrong, it still wouldn’t impact the main point much, in my opinion, i.e. the reasoning behind praxeology. Praxeology is the study of human action, and is commonly understood as a methodology in economics in which one makes deductions from the simple logical axiom that man acts. He writes, “The starting point of all praxeological thinking is not arbitrarily chosen axioms, but a self-evident proposition, fully, clearly and necessarily present in every human mind (p. 4).” I.e., to argue against the axiom is itself an act, which only strengthens the proposition. Furthermore, he adds, “The starting point of praxeology is a self-evident truth, the cognition of action, that is, the cognition of the fact that there is such a thing as consciously aiming at ends (p. 5-6).”

However, Mises also proposes that praxeology is not actually a part of economic science, but vice versa: “…the science of economics, the up-to-now best elaborated part of praxeology…” Economics, in other words, has hitherto made the most discoveries as a part of praxeology, the study of human action, but it is not the only one. He writes,

Up to now the only part of praxeology that has been developed into a scientific system is economics. A Polish philosopher, Tadeusz Kotarbinski, is trying to develop a new branch of praxeology, the praxeological theory of conflict and war as opposed to the theory of cooperation or economics (p. 42).

Mises also divides the study of human action into two brances: “praxeology on the one hand, history on the other hand (p. 41).” History, he writes, “comprehends the totality of what is experienced about human action. It is the methodically arranged record of human action, the description of the phenomena as they happened, viz., in the past.” In his emphasis on the connection between history and praxeology, he adds,

Every act of experience is a description of what happened in terms of the observer’s logical and praxeological equipment and his knowledge of the natural sciences. It is the observer’s attitude that interprets the experience by adding it to his own already previously accumulated store of experienced facts. What distinguishes the experience of the historian from that of the naturalist and the physicist is that he searches for the meaning that the event had or has for those who were either instrumental in bringing it about or were affected by its happening.

[…]

But praxeology abstracts from the concrete content of the ends men are aiming at. It is history that deals with the concrete ends. For history the main question is: What was the meaning the actors attached to the situation in which they found themselves and what was the meaning of their reaction, and, finally, what was the result of these actions?

The reliance of a priori philosophizing in praxeology has led to much criticism from the logical positivist school, which Mises spends a lot of time rebuking in the essay. “The essence of logical positivism,” he states, “is to deny the cognitive value of a priori knowledge by pointing out that all a priori propositions are merely analytic. They do not provide new information, but are merely verbal or tautological, asserting what has already been implied in the definitions and premises. Only experience can lead to synthetic propositions (p. 5).” Much later, he adds that “…the philosophy of positivism tries to assert much more than can be learned from experience. It pretends to know that there is nothing in the universe that could not be investigated and fully clarified by the experimental methods of the natural sciences.” Therefrom he argues that “it is admitted that by everybody that up to now these methods have not contributed anything to the explanation of the phenomena of life as distinguished from physico-chemical phenomena. And all the desparate efforts to reduce thinking and valuing to mechanical principles have failed (p. 53-4).” What fills this gap, Mises contends, is philosophy: “Philosophy deals with the things beyond the limits that the logical structure of the human mind enables man to infer from the exploits of the natural sciences (p. 118),” and an important part of philosophy to understand human action is, in Mises’ eyes, the study of praxeology through the praxeological method. “Although logic, mathematics, and praxeology are not derived from experience, they are not arbitrarily made, but imposed upon us by the world in which we live and act and which we want to study (p. 14).”

In addition to this, he also challenges the contemporary economics field, by charging that “What is wrong with the discipline that is nowadays taught in most universities under the misleading label of economics is not that the teachers and the authors of the textbooks are either not businessmen or failed in their business enterprises. The fault is with their ignorance of economics and with their inability to think logically (p. 78).” He criticizes, for instance, the entire field of macroeconomics, of which he mostly disputes the “national income approach” and the tendency of statisticians to create “statistical laws” out of human action in the same manner that laws of physics are derived. Mises argues, “The concept of ‘statistical law’ originated when some authors, in dealing with human conduct, failed to realize why certain statistical data change only slowly and, in blind enthusiasm, hastily identified slowness of change with absence of change (p. 56).” Furthermore, “They do not take into account the fact that all these statistical figures are continually changing, sometimes more, some times less rapidly. There is in human valuations and consequently in human actions no such regularity as in the field investigated by the natural sciences (p. 26).”

For economists to stop adapting methodologies from the natural sciences, which Mises opines that they should, they ought to master other studies outside economics: “He who wants to achieve anything in praxeology must be conversant with mathematics, physics, biology, history, and jurisprudence, lest he confuse the tasks and the methods of the theory of human action with the tasks and the methods of any of these other branches of knowledge (p. 4).” Naturally, a lot of people would object to this high standard for economists, so he recounted that “When I once expressed this opinion in a lecture, a young man in the audience objected. ‘You are asking too much of an economist,’ he observed; ‘nobody can force me to employ my time in studying all these sciences.’ My answer was: ‘Nobody asks or forces you to become an economist.'”

All in all, I think Mises has laid a strong case for praxeology in this essay, and that it works as a real challenge for logical positivists. To a large degree, he shows eloquence and deep insights, but for certain points he could’ve articulated himself better (though, to be fair, that could be said about most of us). I don’t agree with everything he writes, but he tends to make more or less good and eloquent points on the subjects he mentions, which is at least worth to consider and meditate about. If you plan to take on Mises’ magnum opus “Human Action”, then I recommend to first check out this book to get a briefing on his mindset on methodology and the purpose of praxeology generally.

The book can be downloaded and read for free here: https://mises.org/library/ultimate-foundation-economic-science

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