Thursday, May 27, 2021

What Economics Is and What It Is Not

"Economics is not about things and tangible material objects; it is about men, their meanings, and actions. Goods, commodities, and wealth and all other notions of conduct are not elements of nature; they are elements of human meaning and conduct. He who wants to deal with them must not look at the external world; he must search for them in the meaning of acting men."

- Ludwig von Mises

In his seminal treatise, Human Action, Ludwig von Mises put forward a definition of economics as the scientific study of human action. Mises conceived of economics as a branch of what he called praxeology, his term for the general, formal science of human action. For Mises, it was of paramount importance that economic reasoning and analysis be predicated on human action and not material commodities and their physical properties. While this may seem trite, I hope this essay will convince you otherwise. 

Human Action 

When we observe phenomena in the world and try to make sense of their underlying causation, we invariably discern between purposeful action and unmotivated behaviour. We can either explain phenomena in terms of the purposive actions of human beings, or we can attribute them to natural laws. In the economic realm, we explain phenomena by reference to purposeful actions on the part of human beings. 

Mises' student and intellectual successor, Murray Rothbard, explained purposeful human action as follows: "purposeful behaviour toward the attainment of ends in some future period which will involve the fulfilment of wants otherwise remaining unsatisfied." When a human acts, he employs means in an endeavour to achieve an end or a goal that he subjectively values. Moreover, since action is intentional we can say it is teleological. 

It is clear, then, that not all human behaviour constitutes action in the praxeological sense of the word: unconscious or reflexive behaviour -- for example, coughing when exposed to tear gas -- are evidently not forms of purposeful action. 

The A Priori Nature of Economic Theory

Mises' definition of economics as the science of human action may not appear very controversial. In fact, it might seem like he is simply stating the obvious. But Mises says of economic theory:

"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."

The assertion that economics is an a priori science distinguishes Misesian-Austrians from all other modern schools of thought. Besides the Austrians, all other schools regard economics as an empirical (a posteriori) science and its theorems as a collection of testable hypotheses. 

Mises did not see praxeology as a novel invention. Rather, he saw himself as merely recapitulating and systematizing economics as it had been conceived of by virtually every economist since the genesis of the discipline in the 18th century. While they did not use the term a priori, the view that economics constitutes a deductive science was held by the classical economists. This was also the view of Mises' predecessors in the Austrian school (Menger, Bohm-Bawerk, and von Weisser).  

However, at the same time Mises was formulating his theory of praxeology, a new trend was emerging in the economics profession. Since the 1930s, an idea has prevailed that physics is the preeminent science and that all other sciences, including the social sciences, and economics in particular, must emulate its methods in order to be truly scientific. 

In the 1940s, the same decade Mises' Human Action was published, Paul Samuelson's highly successful textbook Principles of Economics was adopted by the mainstream pedagogy, and since then the neo-classical mainstream, the Chicago school, and all other non-Austrian schools have all strictly adhered to empiricist-positivism and conceived of economics as a quantitative and mathematical discipline. Only the Austrians remain true to the original and legitimate vision of economics as a deductive science. 

According to Austrian economist Hans-Hermann Hoppe, all true economic theorems can be "deduced by means of formal logic from this incontestably true material knowledge regarding the meaning of action."  Hoppe rests his defence of Misesian praxeology on Kantian epistemology. 

The main characteristic of Kantian epistemology is the submission that synthetic a priori propositions exist. These are propositions whose truth is not derived from observational experience but by means of formal logic from a self-evident material axiom. Such axioms are self-evident because it is impossible to reject their validity without self-contradiction; the mere attempt to deny the axiom would result in implicitly assenting to its truth. 

What is the source of synthetic a priori axioms? They derive not from observational experience, but from internal, reflective introspection and experience. Thus, the so-called action axiom satisfies the requirements of a synthetic a priori statement. First, any attempt at denial would by logical necessity have to be interpreted as a purposeful action. Secondly, the axiom is not derived from observation, but purely from reflective consideration. Therefore, all the implications that can be logically deduced from the action axiom must contain as much truth as the original axiom itself. It is these implications that constitute the grand edifice of economic theory. 


So, what is economics? The answer should now be clear: it is the a priori science of human action. And, contrary to the empiricist-positivist trend of the last eighty years, it is emphatically not an empirical science. The damage inflicted by empiricism upon economics cannot be understated. As Hoppe points out, even if there is agreement on a particular theory, this agreement is superficial. For the positivist-empiricists believe such theories to be empirically tested propositions when they are actually true synthetic a priori propositions. 

Only the Austrians understand the true epistemological nature of economic science.


Mises. 1949. Human Action 

Rothbard. 1962. Man, Economy, and State.

Hoppe. 1995. Economic Science and the Austrian Method.

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