Economic Method, Epistemology, Metaphysics, Philosophy

A Critique of Misesian Economic Methodology: Part III – The Heart of the Matter

  1. ludwig-von-mises The Anti-Realist Foundation and the Conflict of Realism

In the previous section we examined the influence that Kantian philosophy had on Wittgenstein’s work in his Tractatus. The conclusions made in the Tractatus provided the positivists a basis for advancing their ideas. These ideas were a form of radical empiricism, the natural sciences were the only way to attain knowledge of the world, and metaphysical claims were entirely meaningless. Moreover, elements of anti-realism are found in the work of the positivists. These considerations give us the evidence we need to question why Mises chose a Kantian route in his attempt to deflect positivist influence in the field of economics.

In this section my aim is to pin down the discord at the heart of the Misesian praxeological system. This discord occurs in two places; first, it takes place in the praxeological foundation itself; second, it takes place when we separate praxeology from how Mises practices economics. We have already witnessed various Austrian scholars recognizing the Kantian nature of Misesian thought.[1] In order to locate the anti-realism in Misesian Praxeology I turn to his book, The Ultimate Foundations of Economic Science (UFES),

“A new epistemology of rationalism aimed at the refutation of this integral empiricism. Leibniz added to the doctrine that nothing is in the intellect that has not previously been in the senses the proviso: except the intellect itself. Kant, awakened by Hume from his “dogmatic slumbers,” put the rationalistic doctrine upon a new basis. Experience, he taught, provides only the raw material out of which the mind forms what is called knowledge. All knowledge is conditioned by the categories that precede any data of experience both in time and in logic. The categories are a priori: they are the mental equipment of the individual that enables him to think and – we may add – to act. As all reasoning presupposes the a priori categories, it is vain to embark upon attempts to prove or to disprove the.”[2] (Emphasis added)

Mises Continues,

“Following in the wake of Kant’s analysis, philosophers raised the question: How can the human mind, by aprioristic thinking, deal with the reality of the external world? As far as praxeology is concerned, the answer is obvious. Both, a priori thinking and reasoning on the one hand and human action on the other, are manifestations of the human mind. The logical structure of the human mind creates the reality of action. Reason and action are congeneric and homogenous, two aspects of the same phenomenon.”[3] (Emphasis added)

Finally, in Human Action, Mises says, “Like logic and mathematics, praxeological knowledge is in us; it does not come from without.”[4] (Emphasis added) It is rather evident from these passages that Mises is more than a rhetorical Kantian. These statements are the pinnacle of explicitly Kantian proclamations about the categories of the mind in relation to the world. The category of action in the human mind is fundamental for Mises. Human action is the categorical axiom from which he constructs all of economics. Indeed, this axiom implies the categories of logic, regularity in nature, causality, time, and value.[5] Boettke strengthens this view by highlighting these and three other prerequisites of action as distinct categories of the mind. These prerequisite categories Boettke highlights are temporality, causality, uncertainty, dissatisfaction, an imagined preferred state of affairs, and beliefs or expectations with regards to the means utilized for achieving ends.[6] Mises is adding to the Kantian conception of categories of the mind, the categories of action he considers vital for the science of economics. Just as Kant removed the laws of logic from the external world by putting them in the mind safe from the attacks of Hume’s empiricism; Mises removed the prerequisite laws of action needed for economics from the external world by putting them in the mind safe from the attacks of positivism. This is the explicitly anti-realist nature of the Misesian praxeological foundation.

As soon as we have identified the perspicuous anti-realist component of Misesian thought, a realist component can be discovered as well. Mises says, “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.”[7] (Emphasis added) This statement seems coherent with the previously referenced material but later Mises says, “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.[8] (Emphasis added) Boettke also references this position of Mises, but does not recognize it as being problematic – quoting Mises Boettke states,

‘The starting point of praxeology is not a choice of axioms and a decision about methods of procedure, but reflection about the essence of action.’ In our efforts to understand reality we do not choose the axiom we wish to begin with so much as it is chosen for us by the world in which we live. The axiom of action is in a sense imposed on us by the world.” (Original emphasis)[9]

Boettke continues,

“As the ‘filter’ through which we make sense of our surroundings, we must necessarily begin our understanding processes with the concept of purposeful action. It is the only means available to us for this purpose, as we cannot help but see the world through the ‘lenses’ conditioned by the unavoidable structure of our minds. If we desire to ground economics in the reality of the world, Mises maintained, we have no choice but start with the axiom of action. No other starting point can yield theory that illuminates the behavior of real individuals.”[10]

It is quite telling that Boettke, within the same paragraph, utilizes the language of realism and anti-realism in order to describe Misesian praxeology from which the action axiom is derived. How is it that our minds create the reality of action while at the same time the axiom of action is imposed on us by the world? How is it that the axiom of action is chosen for us by the world (external reality) and at the same time our perception of the world is conditioned by the unavoidable structure of the human mind? How is it that we can abstract off of the world that which the mind has already put on it? The answer of course, is it cannot. This conflict is not a nuanced interpretation in order to find a problem, rather, the problem is a contradiction located at the heart of the Misesian praxeological foundation – to claim that we put onto the world the very axiom that the world forces onto us is no different than saying that A is ~A.

The realism/anti-realism tension is more poignant when we move from the praxeological foundation to the actual practice of economics, or as Mises called it catallactics. Recall that Jorg Guido Hulsmann argued when we examine how Mises practices economics he is more in line with Aristotelian realism; Hulsmann encourages us to examine the economic work of Mises to validate this claim.

Following the suggestion of Hulsmann, I will examine Misesian economics rather than Misesian praxeology to find further elements of realism. In the first part of The Theory of Money and Credit, Mises discusses the origin and nature of money. In this section we find Mises discussing direct and indirect exchange,[11] supply and demand,[12] the division of labor,[13] the development of a medium of exchange,[14] gold and silver as money,[15] and finally the secondary functions of money.[16] All of the economic insights Mises elucidates in this section are discussed absent any reference to categories of the mind, the imposition of structural features of the mind onto the world, or any other kind of vocabulary suggestive of anti-realism. The language employed can be entirely recognized as realist since Mises is discussing all of these various facets of economics existing firmly in the external world independent of the perceptual capacities of the human mind. Furthermore, in part II, chapter II of the same book, we find more evidence of realism. While Mises, following the tradition of Menger and Bawerk, understand economic valuation of means and ends to be entirely subjective, this subjectivity leads to an independent objective exchange value of monetary functioning. Speaking of monetary exchange value as something independent and objective carries with it realist implications of understanding the economic world humans interact.

Additional evidence of realism can be found in the manner Mises refutes socialism and Marxism.[17] Mises argues the failure of these economic systems is the result of their inadequacy to conform to economic reality as we experience it. In his famous work, Socialism, he argues that centrally planned economies do not allow proper economic calculation and are destined to fail. When arguing against Marxism, Mises claims this system of economics is a revolt against reason,[18] Marxism is unable to withstand the devastating critiques of economists,[19] Marxist ideological – doctrine aims not at discovering economic truths of the world but rather to destroy the reputation of economic teachings discovered thus far in economic history,[20] and that Marxism is a purely mystical doctrine.[21] All of these arguments against Marxism are employed in order to lucidly expose the failure of this economic system to explain the economic reality of the external world. According to the critique of Mises, Marxism fails as an economic system due to the fact that it violates the economic laws discovered in reality, rather than violate the praxeological axioms introspectively discovered in the human mind.

Truths of the economic reality of the external world are what Mises was truly passionate about. This is what motivated him to build a system protecting the most important element of economics – purposive acting man – from the positivist philosophy he considered to be launching insidious attacks upon such a vitally important field of study critical for human flourishing. Although Mises was passionate, we cannot ignore the choice the Misesian system forces us to make given the realism/anti-realism tension embedded in the system itself. Indeed, it is more than a tension; it is a contradiction that must be eradicated. The Misesian praxeological foundation is saliently anti-realist and yet contains seeds of realism.   The evidence provided above thoroughly establishes the Misesian realist practice of economics when offering theory and refuting opponents. The unfortunate state of affairs Austrian adherents are now required to confront is the choice to either abandon the distinctive praxeological foundation of the contemporary ASE, or keep the praxeological foundation while abandoning the practice of economics from a realist perspective.

  1. What is the Path Forward for the Austrian School of Economics?

In the previous section, I exposed the contradiction at the heart of the Misesian praxeological foundation. Austrians are now forced to make a choice, either give up the anti-realist praxeological foundation so dear to contemporary ASE, or abandon the practice of economics from the realist tradition. These are their only options if philosophical cogency is virtue they would like to appeal.

While difficult for the contemporary adherents of the ASE, the correct choice at this juncture is to abandon the anti-realism of the Misesian praxeological system. Indeed, Mises was not a philosopher, but an economist. His primary concern was protecting the truths of economic reality from philosophies that would undermine them. Remember that by giving up the anti-realism in the praxeological foundation, I am not giving up the conviction that economics requires the appropriate philosophical interpretation. In my view, this interpretation must be committedly realist in the classical metaphysical tradition of the Ancients, the Patristics, and the Scholastics. A realist practice of economics requires a coherent metaphysical understanding of reality. It is my contention that classical realist metaphysics, combined with the appropriate moral philosophy informed by the teleological aspect of human action is necessary for the salvation of economics as a science.

 

– Lucas G. Westman


[1] “We provide evidence to show how Mises was influenced in his attempt to show how Mises was influenced in his attempt to justify pure theory by the philosophy of Immanuel Kant and also demonstrate that Mises’s application of this idea to the science of economics moves beyond Kant.” (Living Economics, Boettke, Pg. 195)

[2] The Ultimate Foundation of Economic Science, Mises, Pg. 10

[3] The Ultimate Foundation of Economic Science, Mises, Pg. 37

[4] Pg. 64

[5] The Ultimate Foundation of Economic Science, Mises, Pg. 31

[6] Living Economics, Boettke, Pg. 204

[7] The Ultimate Foundations of Economic Science, Pg. 4

[8] The Ultimate Foundations of Economic Science, Pg. 12

[9] Living Economics, Pg. 203

[10] Living Economics, Pg. 203

[11] The Theory of Money and Credit, Mises, Pg. 30

[12] The Theory of Money and Credit, Mises, Pg. 31

[13] The Theory of Money and Credit, Mises, Pg. 31

[14] The Theory of Money and Credit, Mises, Pg. 32

[15] The Theory of Money and Credit, Mises, Pg. 33

[16] The Theory of Money and Credit, Mises, Pg. 34 – 37

[17] If there is at least one area we are indebted to the Austrians it is their thorough and systematic refutations of socialism and Marxism.

[18] Human Action, Scholars Edition, Pg. 72

[19] Human Action, Scholars Edition, Pg. 74

[20] Human Action, Scholars Edition, Pg. 74

[21] Human Action, Scholars Edition, Pg. 80

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8 thoughts on “A Critique of Misesian Economic Methodology: Part III – The Heart of the Matter

  1. michelaccad says:

    I have read all three posts. I think you are correct, there is a philosophical ambivalence in Mises. The Aristotelian lineage goes back to Menger and, before him, Bentano (according to David Gordon in his “Philosophical Origins of Austrian Economics.”)

    However, I find that the ambivalence is of little consequence, as far as the economic theory is concerned. Austrian economics is squarely realist. Where do you see that the realist/anti-realist ambivalence is a problem for the theory?

    You listed earlier similarities between Chicago school and Austrian school economics. They share similar conclusions regarding certain propositions, but that cannot lead one to see in these similarities a sign that ASE suffers from a fundamental incongruity.

    Liked by 1 person

    • Thanks for taking the time to read the articles.

      The discord is based on the fact that it is incoherent to suggest a methodological foundation that is anti-realist when trying to do economics from a realist perspective. It cannot be done if philosophical consistency is important for a school of thought.

      The similarities between the Austrians and the Chicago School demonstrates that their distinctive claim to fame doesn’t amount to much, especially when their philosophical approach does not work in the first place.

      The ambivalence matters because Austrian theory depends on the method. If the theory works, it has to be shown to work from an entirely different method. Until this is accomplished, there is no reason to take the theory seriously. The ASE is marketed as a holistic package. It is all or nothing, and if there are significant cracks in the foundation, the entire system deserves to be reconsidered.

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  2. michelaccad says:

    Thanks, Lucas.

    I’m still unpersuaded…

    In the topic of the similarities between CSE and ASE, bear in mind that CSE does not have an explicit philosophical foundation, and they can arrive at certain similar conclusions by a similar ad hoc “realist” reasoning. That does not imply that ASE is itself self-contradictory.

    On a related, and perhaps more important, point, someone like Jeff Herbener explains how concepts such as the “law of diminishing marginal utility” may seem superficially similar whether one considers them from an Austrian perspective or from a (mainstream, Jevonsian or Walrasian) neoclassical perspective when, in fact, they are entirely different concepts.

    Also, what do you mean by “if the theory works, it has to be shown to work…”. By what criterion will you judge the theory to work. ASE precisely makes no predictive claims (the way positivist said may do for their theory), but a claim of internal coherence. I don’t think you’ve shown the internal incoherence in ASE.

    I grant that outside of economics, Mises’ ambivalence could be a problem for a more general philosophical anthropology, but the claim that ASE is an all or nothing package that depends on adopting both realist and anti-realist premises is unfounded, in my view. In other words, even if Mises had ambivalent views, it does not follow that ASE is ambivalent, since its starting point and method can be understood in purely realist terms.

    Liked by 1 person

    • Well, I am glad you took the time to read the articles and thoughtfully engage. However, I am not sure you have fully grasped the argument I am attempting to articulate. This may be due to a lack of clarity in my argument, but I think the amount of evidence provided in the articles is substantial.

      Here is the problem. The ASE claims to be Misesian. If it is Misesian it is ambivalent from the get go and lacks necessary philosophical coherence. This lack of coherence is due to the fact that the Misesian approach, which is the defining characteristic of the contemporary school, is guilt of metaphysical discord. This discord needs to be fixed by choosing realism or anti-realism because you cannot commit to both without yielding to a contradiction. The direction a person goes on this issue will have substantial affects on how one thinks about economics. So it isn’t enough to disregard the foundational errors and still cling to the theory that is dependent on the flawed methodological foundation to begin with. If the methodological foundation is flawed, how can you be sure that the theory derived from the method is not equally flawed? I maintain that such an assurance cannot be justified on the ASE perspective. The only way it could be justified is due to political motivations rather than economic propositions.

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  3. Lucas,

    Show me the incoherence! You cannot just assert that it must exist.

    My point is that Mises’ personal philosophical views and internal contradictions are irrelevant to ASE, since ASE starts with a realist premise (“Humans act purposely” what could be more Aristotelian than that?) and then proceeds with standard rules of predicate logic, without ever needing to invoke anti-realist positions.

    To conflate Mises’ personal philosophical views with ASE theory is a mistake, unless you can show exactly where ASE is inconsistent and relate that inconsistency to the realist/anti-realist ambivalence you correctly identified in Mises.

    Michel

    Liked by 1 person

    • It seems to me that you are ignoring the evidence I provided in the articles clearly demonstrating the incoherence. If you want to choose the Aristotelian side of the coin, fine, but that changes things significantly, and it changes them in ways that move away from Mises. It should be quite obvious that to be Aristotelian is different than being Kantian in your approach to philosophy, especially metaphysics.

      To claim that the personal philosophical views of Mises are irrelevant to ASE is quite frankly absurd. Mises isn’t just some guy found in the school that should be considered along others in the school on an equal footing. The contemporary Austrian school is dedicated to advancing the ideas of Mises, hence, the Mises Institute. Rothbard’s entire mission in life was to advance the ideas of Mises. His magnum opus – Man, Economy, and State – is his contribution to the task. Robert P. Murphy has also recently released a book looking to advance the ideas of Mises. So your attempt to downplay the significance of Mises is totally misguided and disingenuous to say the least.

      Consider for a moment your claim that human act purposively being an Aristotelian realist claim. Your position is not the position of Mises. Mises locates this premise in the categories of the mind, and he does so in strictly Kantian fashion, which I provide evidence for in the articles. This would mean that according to Mises, humans act purposely would be a claim that is anti-realist rather than realist. So right off the bat you are committing the same blunder the articles expose. You want to have your cake and eat it too.

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  4. Hello Lucas,

    I know we’ve had discussions on this topic before.

    This is what I believe you are saying so correct me if I’m wrong or if you disagree.

    1) Mises grounds the claim “humans act purposefully” on a “Kantian” framework (you take to be “anti-realist”) and not a preferred/superior “Aristotelian” framework (you take to be “realist”)
    2) Mises follows the “impositionist” view of the a priori that our mind imposes reality upon us versus the “reflectionist” view where we reflect upon ourselves to make sense and derive a priori claims (such as the a priori of action).
    3) All knowledge must be derived from within an Aristotelian framework as opposed to a Kantian framework

    Having said this, I have another question for you.

    Do you “agree” the claim “humans act purposefully” is 1) a logical truth and 2) a claim about the real world? Moreover, do you think it is a “necessary truth” that is undeniable?

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