Praxeology, Economics, and Value Judgments
Mises's methodological apriorism is undoubtedly his most important contribution to what we ordinarily call "the methodology of the social sciences."(1) Mises showed us that every attempt to understand and describe human action and interaction, as he defined these terms, must use methodological apriorism. He maintained that normal human beings cannot avoid using methodological apriorism when they try to understand or describe human action or interaction. This includes one's efforts to understand the lone prospector's search for gold, a tennis match, a market economy, a society, a race to discover the smallest particle of matter or energy and her own descriptions and understandings. Most significant to the purpose here, one must use methodological apriorism to understand a discussion of ethics among philosophers. Mises did not invent methodological apriorism, just as Freud did not invent the subconscious; but he seems to have been the first to recognize that its use is a characteristic of historical descriptions and understandings.
Mises's enlightenment led him to confidently employ a new term to refer to the unified science of human action he envisioned -- namely, praxeology. Mises did invent the justification for praxeology and he explicitly proclaimed methodological apriorism to be its method.
Praxeology, Economics, and the Interpretation of History
Praxeology is the theory of human action in general. It is the study of action and interaction among normal human beings. For such beings existence and action are implied by each other. From the a priori assumption that normal human beings act, one uses methodological apriorism to derive the categories of action. The categories of action consist of the properties of action that are implicit in action, namely, that human beings experience ends and means and, therefore, causality and teleology; that they perceive action in terms of time; and that they are uncertain that the means they use to achieve their ends will actually achieve them in the way they anticipate.
Ultimately, the goal of the praxeologist is understand and describe, or help someone else describe, some set of historical events (or to predict some future event). In other words, the praxeologist's goal is to be an historian.(2) Ordinarily, the praxeologist wants to focus on a particular aspect of history. For example, the praxeologist qua economist focusses on historical events that can be regarded as primarily economic, such as a recession or catallactic unemployment. Her aim is to provide an economic interpretation of history.
To achieve this aim, the economist must first construct economic theory. To do this, she uses her experience and intuition to conceptually disengage those aspects she defines as economic from the aspects she defines as non-economic. She begins by defining economic action as human action which, following Mises, is carried out under the conditions specified in the definition of the unhampered market economy. Later, depending on the historical event she aims to describe, she may consider economic action under various types of coercive taxes, regulations, prohibitions, monetary regimes, and incompletely specified property rights.
In constructing economic theory, she must make what I would like to call subsidiary praxeological assumptions. These assumptions are derived from the definition of the unhampered market economy. They are that there is (1) specialization, (2) markets, (3) rights to own and exchange goods, (4) money is the means used to acquire goods, (5) disutility of labor, (6) and scarcity. Economic theory in general consists of deducing how means and ends, time and uncertainty would be manifested in human interaction under these circumstances.
Before the economist can use economic theory to interpret the historical event, she must re-engage the economic and the non-economic aspects of history in order to acquire confidence that the event she is describing is indeed economic. To do this, she makes what I call subsidiary economic assumptions. Subsidiary economic assumptions are of three types: (1) assumptions about the particular means and ends, plans and expectations of actors; (2) assumptions based on knowledge of non-economic action, possibly organized by using other branches of praxeology; and (3) assumptions based on knowledge of natural science, including biology. In making such assumptions, the economist may employ additional praxeological theories.
A Preliminary Image
Let me try to explain this by referring to diagram 1. The focus of the praxeologist's interest is
some set of historical events, which I label simply an historical event. The historical event that is
of interest to the economist is a mix of (1) economic action, (2) non-economic action, and (3)
non-action. It is shown at the top of the
diagram.
Diagram 1
To understand the historical event one begins by recognizing that she must use praxeology. Praxeology is in bold print on the left. One branch of praxeology is economic theory, as shown by line segment 5. This branch is built by constructing images of interaction under the conditions specified in the definition of the unhampered market economy, which were listed above. To put this differently, economic theory is the result of combining the a priori categories of praxeology with subsidiary praxeological assumptions that define the conditions of the market economy. This combination is indicated by the fact that line segments 3 and 5 attach to economic theory, which is in bold print. Other branches of praxeology may be built in a similar way with subsidiary assumptions that bracket the types of action and interaction with which they are defined to be concerned. The result, from the standpoint of economics, is subsidiary assumptions from the other branches. The building of the other branches is indicated by line segment 8.
The process of interpreting the historical event begins by reconstructing it in light of economic theory, the subsidiary economic assumptions, and the subsidiary assumptions from other branches of praxeology. The need to reconstruct is shown by line segment 1. Line segments 2, 4, and 6 illustrate the combination of subsidiary economic assumptions, economic theory, and subsidiary assumptions from other branches of praxeology that are necessary, respectively, for the reconstruction to begin. Once the reconstruction on the basis of economic theory and subsidiary assumptions takes place, it is necessary to further reconstruct by adding knowledge of natural science. The need for further reconstruction is shown by line segment 7. Finally, since an historical event also consists of non-action, its transformation requires knowledge of the non-praxeological sciences. The non-praxeological sciences are provisionally depicted by the right point of the diagram, although a qualification of this picture will be made momentarily.(3) The input of non-praxeological knowledge into the reconstruction is indicated by line segment 9. The result of the reconstruction is an economic interpretation of the historical event, as shown by the bottom part of the diagram.
An Example
As an example, consider Mises's theory of the trade cycle.(4) Suppose that we observe an historical event like the Great Depression in the U.S. We judge that there is an economic event -- namely a trade cycle that was caused by monetary factors -- embedded in our observations of the historical period. More specifically, we judge that during the depression period, there was an increase in the quantity of the items that individuals use as media of exchange followed by levels of prices of things that most people buy which were not recognized to be higher than they otherwise would have been. In other words, prices, as recognized by economic actors, did not rise. As a result, people made numerous errors in their calculations. Most significantly, entrepreneurs shifted to production methods that were more roundabout, expecting the temporarily lower real rates of interest and the temporarily high demand for durable goods and capital equipment to last for a substantial length of time. When these expectations turned out to be wrong and the malinvestment was revealed, a readjustment had to occur. Part of the so-called recession of 1929-1931, we judge, was the result of the expansion of the quantity of money prior to the 1929 stock market crash.
To support our judgment, we provide an economic interpretation of the Great Depression by using economic theory, particular assumptions about means and ends, plans and expectations; assumptions derived from other branches of praxeology; and our knowledge of non-praxeological science. By doing this, we aim to show that our economic interpretation is most relevant. We assume that time-consuming capital use is a means, that plans do not include knowledge of the particular price effects of the increase in money, that certain political events were occurring at the same time, and that certain scientific and biological knowledge is relevant.
Consider our assumptions about political events in greater detail. We might construct a political theory that is analogous to economic theory. Such a theory would be a branch of praxeology, the aim of which is the elucidation of the interaction of normal human actors under some set of circumstances we define as political. Public choice theory, properly interpreted, would qualify; although the fact that it is restricted to 12
peaceful interaction under the rules of democratic decision-making limits its scope.(5) The usefulness of our theory in helping us provide an economic understanding of the great depression is that it may help us make relevant assumptions about political events. Our political theory effects our judgment about the relevance of our economic interpretation. For example, a political theory may help us understand why the quantity of money was increased in the first place. In addition, it may help us understand why the depression lasted so long by helping us organize our thoughts about the failure of government officials to keep their promises and to enforce the contracts made by banks and other debtors. Such a theory might help us show why it is relevant to assume that creditors were unable to predict that both their debtors, banks, and government officials would break their promises.
Consider now the subsidiary assumptions about particular plans and expectations relating to the great depression. The only expectation that is derived from economic theory itself is that since an assumption of economic theory is that actors use money prices to communicate, any avoidable factor that effects what Mises called the money relation must interfere with communication.(6) In other words, it must lead to malinvestment. Whether it causes a depression, however, depends upon a number of other factors, including most importantly how soon entrepreneurship becomes aware of the effects of the increase in quantity of money and how effectively entrepreneurship can restructure itself in order to make suitable adjustments. It is our special assumptions about entrepreneurship -- namely, that it is is unlikely to determine the likely effects of the increase in money -- that enable us to feel confident that our economic interpretation of the great depression is relevant.
Finally, it should be noted that the relevance of the theory of the trade cycle is confined to situations in which the individuals are human actors (i.e., normal human beings). If individuals could not recognize their errors in judgment, they could never perceive malinvestment. No depression, in the sense that it is meaningful to those who are living at the time, could occur. In everyday life, where there are both normal and non-normal human beings, the latter will perceive the situation very differently. Praxeology, of course, is directly useful only in understanding the interaction among normal human beings.
It is essential to realize that the only special thing about recognizing that we use methodological apriorism is that we can avoid the mistakes that we would otherwise make. Praxeology is not an alternative to scientism, historicism, or positivism. It is what everyone does who aims to interpret events for which normal human actors are partly responsible.
A Simpler Image
The procedure described in diagram 1 was both preliminary and possibly misleading. Both the
other branches of praxeology and those items that have been listed as non-praxeological science
could be included as subsidiary assumptions of economics. If they were, the task of providing an
economic interpretation of an historical event could be represented more simply by omitting any
direct reference to other branches of praxeology and to non-praxeological knowledge. Diagram 2
would summarize the process. Of course, the other praxeological branches and non-praxeological
knowledge could never be fully incorporated into subsidiary assumptions because (1) the
phenomenon of intersubjective uncertainty renders it impossible to make a complete listing of the
branches of praxeology and (2) there is continuous development of the non-praxeological
sciences. It is these facts which explain why econo-mics can only roughly be used to help one
understand only some historical
events.
Diagram 2
Does Methodological Apriorism Entail the Use of Value Judgments
Whether methodological apriorism entails making a value judgment depends upon how one defines value judgment. The praxeologist does assume that the other normal human beings, whose actions she aims to describe, possess the categories of action. It might be said that her purpose for doing this derives from her desire to treat others as normal human beings, as opposed to being elitist or treating them as non-actors. She may also attribute her methodological apriorism to experience. We know from our experience that we are not cognitively superior to other human beings in every endeavor, although we may be superior in some.
If this is regarded as a value judgment, it is surely of a very different character than the types of judgments about liberty and property made by Hoppe and other libertarians. We cannot derive any ethical principles from our judgment not to be elitist other than what is implied in the non-elitist stance itself. For example, it does not follow from the non-elitist stance that each individual should be granted a right to what he produces, a homestead right, a right to have his argument evaluated according to norms in a forum on ethics, or any other right of this type. It is true that if the historian fails to account for the particular values of the actors he is describing or if his other subsidiary praxeological or economic assumptions do not match reality, his history will be less relevant. But this is a deficiency of his doing history not the insertion of his personal values.
Deficiencies in a person's doing history can be determined by peers who examine the relevance of the assumptions with regards to the facts to be described. Deficiencies can be identified by identifying the assumptions. Indeed, an historian, as such, has an obligation to his peers to do his history in such a way that the peers can readily identify the assumptions. The insertion of values carries no such obligation. The aim of an "historian" who inserts his personal values is to conceal his assumptions so that evaluators may falsely believe that his descriptions are accurate even though they may not be. Such a person wants to persuade through sophistry.
There is no objective way to distinguish doing history from sophistry. Whether a statement is one or the other can only be judged through peer evaluation. Moreover, since peers may have their own interests which coincide with those of a sophist or even a sub-par historian, one cannot rely on peers to give an unbiased evaluation. Ultimately, one must either do his own evaluation or rely on others who be believes will do a correct evaluation.
The absence of an objective means of distinguishing history from sophistry does not in any way reduce the importance of the arguments made in this part. Doing history is an inherently subjective process. Because of this, there is no reason to think that objective means of evaluation would exist in the first place. Someone who regards this as a deficiency of praxeology simply does not understand what it means to do history. He confuses it with natural science, for which objective means of distinguishing between a correct theory and an incorrect theory typically do exist.
II. How a Branch of Praxeology is Constructed
Praxeology and Economics
In the idealized impersonal interactions in the usual image of the market economy, the currency is money. Each economic actor regards money as a means to the end of reducing his felt uneasiness. Besides the assumption that money is used and other assumptions like specialization, disutility of labor, and the existence of markets; economists must make the assumption that there are distinct ownership rights to goods, factors and money. Otherwise, economic interaction would not occur, since the acquisition of money would not be expected to ultimately reduce felt uneasiness. Acquisition would not constitute ownership. In practical terms, the presence of unrelenting "theft" and extortion would render the production and exchange of physical commodities impossible.
It is important to realize that when the economist makes assumptions that define economic theory, including the assumption that economic interaction requires the existence of rights, he is in essence making assumptions that enable him to roughly bracket a branch of human action for further elucidation. By definition, that branch, namely economic theory, cannot exist without the necessary bracketing assumptions.
These assumptions are properly viewed as subsidiary assumptions of praxeology or, as the term was used above, subsidiary praxeological assumptions. They indicate the praxeologist's interest in economics. They are distinguished from subsidiary economic assumptions, which indicate the economist's interest in particular environments in which economic actors can be imagined to interact. It is true that the subsidiary praxeological assumptions are implied by the very notion of the phenomena to be elucidated (economic interaction in the market economy) and that, for this reason, one cannot construct economic theory without making the assumptions. This compares with the fact that the a priori assumption of action is derived from the definition of action and that one cannot conceive of praxeology without the assumption that human beings act. However, it would be a grievous error to confuse the a priori assumption of action, which must be made by everyone who aims to understand action of any type, with the subsidiary assumptions that enable the praxeologist to roughly bracket the field of economic interaction. The human mind can imagine nothing about normal human beings without assuming that they act. Without the a priori assumption of action, there could be no praxeology and therefore no understanding of historical events and also no economics. Without the subsidiary praxeological assumptions that bracket economic theory, there could be no economics; but there could still be other branches of praxeology. The praxeologist could still construct a theory of politics, war, ethics, and so on.
Every branch of human action that can be conceived entails the elucidation of the a priori categories of action, by means of subsidiary assumptions. For example, economics is the elucidation of ends and means, time and uncertainty under the particular conditions specified in the definition of the market economy -- i.e., under the subsidiary assumptions mentioned above.
References
1. Much of the background for this paper is derived from the author's recently completed study of Mises's contribution to economics, especially as represented in Mises's Human Action (1966). See Gunning, 1990, for further details on the ideas expressed here about praxeology and methodological apriorism.
2. In this formulation, prediction is history pushed forward. Thus, it is not inconsistent to say that the praxeologist also has a goal of predicting the future.
3. An alternative but basically identical formulation could be constructed by saying that a particular economic theory is constructed by combining general economic theory with (1) subsidiary economic assumptions, (2) subsidiary assumptions from other branches, and (3) subsidiary assumptions from the non-praxeological sciences. The particular economic theory would then constitute the means of interpreting the historical event. Diagram 2 reflects this possibility more clearly.
6. The exception would be a change that is pinpointed in such a way that it exactly offsets other changes in the money relation that may be occurring. It is difficult to imagine that this would ever occur in everyday life. And it surely could not be planned.
Gunning’s Address
J. Patrick Gunning
Professor of Economics/ College of Business
Feng Chia University
100 Wenhwa Rd, Taichung
Taiwan, R.O.C.
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Email: gunning@fcu.edu.tw