Economics - '...the mind's interaction with the physical world...'

Posted by ProjectC 
'It was a tragic day when economics, the queen of the social sciences, adopted the methods associated with the natural sciences: empiricism and positivism. In the sweep of economic thought, this change occurred —not coincidentally—about the same time that intellectuals and politicians came to believe in the efficacy of government planning. Despite their failures, both doctrines remain godless faiths of our age.'

- Llewellyn H. Rockwell, Jr. (Preface, Source)

'...obvious difference between economics and the empirical sciences. ...For it is through actions that the mind and reality make contact. ...the mind's interaction with the physical world by means of its own physical body.'

'But Mises by no means merely notices this rather obvious difference between economics and the empirical sciences. He makes us understand the nature of this difference and explains how and why a unique discipline like economics, which teaches something about reality without requiring observations, can possibly exist. It is this achievement of Mises's which can hardly be overrated.

In order to better understand his explanation, we must make an excursion into the field of philosophy, or more precisely into the field of the philosophy of knowledge or epistemology. In particular, we must examine the epistemology of Immanuel Kant as developed most completely in his Critique of Pure Reason. Mises's idea of praxeology is clearly influenced by Kant. This is not to say that Mises is a plain and simple Kantian. As a matter of fact, as I will point out later, Mises carries the Kantian epistemology beyond the point at which Kant himself left off. Mises improves the Kantian philosophy in a way that to this very day has been completely ignored and unappreciated by orthodox Kantian philosophers. Nonetheless, Mises takes from Kant his central conceptual and terminological distinctions as well as some fundamental Kantian insights into the nature of human knowledge. Thus we must turn to Kant.

Kant, in the course of his critique of classical empiricism, in particular that of David Hume, developed the idea that all our propositions can be classified in a two-fold way: On the one hand they are either analytic or synthetic, and on the other they are either a priori or a posteriori. The meaning of these distinctions is, in short, the following. Propositions are analytic whenever the means of formal logic are sufficient in order to find out whether they are true or not; otherwise propositions are synthetic ones. And propositions are a posteriori whenever observations are necessary in order to establish their truth or at least confirm them. If observations are not necessary, then propositions are a priori. The characteristic mark of Kantian philosophy is the claim that true a priori synthetic propositions exist—and it is because Mises subscribes to this claim that he can be called a Kantian. Synthetic a priori propositions are those whose truth-value can be definitely established, even though in order to do so the means of formal logic are not sufficient (while, of course, necessary) and observations are unnecessary.

According to Kant, mathematics and geometry provide examples of true a priori synthetic propositions. Yet he also thinks that a proposition such as the general principle of causality—i.e., the statement that there are time-invariantly operating causes, and every event is embedded into a network of such causes—is a true synthetic a priori proposition. I cannot go into great detail here to explain how Kant justifies this view. <a href="[mises.org]#[12]">[12]</a> A few remarks will have to suffice. First, how is the truth of such propositions derived, if formal logic is not sufficient and observations are unnecessary? Kant's answer is that the truth follows from self-evident material axioms.

What makes these axioms self-evident? Kant answers, it is not because they are evident in a psychological sense, in which case we would be immediately aware of them. On the contrary, Kant insists, it is usually much more painstaking to discover such axioms than it is to discover some empirical truth such as that the leaves of trees are green. They are self-evident because one cannot deny their truth without self-contradiction; that is, in attempting to deny them one would actually, implicitly, admit their truth.

How do we find such axioms? Kant answers, by reflecting upon ourselves, by understanding ourselves as knowing subjects. And this fact—that the truth of a priori synthetic propositions derives ultimately from inner, reflectively produced experience—also explains why such propositions can possibly have the status of being understood as necessarily true. Observational experience can only reveal things as they happen to be; there is nothing in it that indicates why things must be the way they are. Contrary to this, however, writes Kant, our reason can understand such things as being necessarily the way they are, "which it has itself produced according to its own design." <a href="[mises.org]#[13]">[13]</a>

In all this Mises follows Kant. Yet, as I said earlier, Mises adds one more extremely important insight that Kant had only vaguely glimpsed. It has been a common quarrel with Kantianism that this philosophy seemed to imply some sort of idealism. For if, as Kant sees it, true synthetic a priori propositions are propositions about how our mind works and must of necessity work, how can it be explained that such mental categories fit reality? How can it be explained, for instance, that reality conforms to the principle of causality if this principle has to be understood as one to which the operation of our mind must conform? Don't we have to make the absurd idealistic assumption that this is possible only because reality was actually created by the mind? So that I am not misunderstood, I do not think that such a charge against Kantianism is justified. <a href="[mises.org]#[14]">[14]</a> And yet, through parts of his formulations Kant has no doubt given this charge some plausibility.

Consider, for example, this programmatic statement of his: "So far it has been assumed that our knowledge had to conform to observational reality"; instead it should be assumed "that observational reality conform to our knowledge."<a href="[mises.org]#[15]">[15]</a>

Mises provides the solution to this challenge. It is true, as Kant says, that true synthetic a priori propositions are grounded in self-evident axioms and that these axioms have to be understood by reflection upon ourselves rather than being in any meaningful sense "observable." Yet we have to go one step further. We must recognize that such necessary truths are not simply categories of our mind, but that our mind is one of acting persons. Our mental categories have to be understood as ultimately grounded in categories of action. And as soon as this is recognized, all idealistic suggestions immediately disappear. Instead, an epistemology claiming the existence of true synthetic a priori propositions becomes a realistic epistemology. Since it is understood as ultimately grounded in categories of action, the gulf between the mental and the real, outside, physical world is bridged. As categories of action, they must be mental things as much as they are characteristics of reality. For it is through actions that the mind and reality make contact.

Kant had hinted at this solution. He thought mathematics, for instance, had to be grounded in our knowledge of the meaning of repetition, of repetitive operations. And he also realized, if only somewhat vaguely, that the principle of causality is implied in our understanding of what it is and means to act. <a href="[mises.org]#[16]">[16]</a>

Yet it is Mises who brings this insight to the foreground: Causality, he realizes, is a category of action. To act means to interfere at some earlier point in time in order to produce some later result, and thus every actor must presuppose the existence of constantly operating causes. Causality is a prerequisite of acting, as Mises puts it.

But Mises is not, as is Kant, interested in epistemology as such. With his recognition of action as the bridge between the mind and the outside reality, he has found a solution to the Kantian problem of how true synthetic a priori propositions can be possible. And he has offered some extremely valuable insights regarding the ultimate foundation of other central epistemological propositions besides the principle of causality, such as the law of contradiction as the cornerstone of logic. And he has thereby opened a path for future philosophical research that, to my knowledge, has hardly been traveled. Yet Mises's subject matter is economics, and so I will have to lay to rest the problem of explaining in more detail the causality principle as an a priori true proposition. <a href="[mises.org]#[17]">[17]</a>

Mises not only recognizes that epistemology indirectly rests on our reflective knowledge of action and can thereby claim to state something a priori true about reality but that economics does so too and does so in a much more direct way. Economic propositions flow directly from our reflectively gained knowledge of action; and the status of these propositions as a priori true statements about something real is derived from our understanding of what Mises terms "the axiom of action."

This axiom, the proposition that humans act, fulfills the requirements precisely for a true synthetic a priori proposition. It cannot be denied that this proposition is true, since the denial would have to be categorized as an action—and so the truth of the statement literally cannot be undone. And the axiom is also not derived from observation—there are only bodily movements to be observed but no such things as actions—but stems instead from reflective understanding.

Moreover, as something that has to be understood rather than observed, it is still knowledge about reality. This is because the conceptual distinctions involved in this understanding are nothing less than the categories employed in the mind's interaction with the physical world by means of its own physical body. And the axiom of action in all its implications is certainly not self-evident in a psychological sense, although once made explicit it can be understood as an undeniably true proposition about something real and existent. <a href="[mises.org]#[18]">[18]</a>

Certainly, it is not psychologically evident nor is it observable that with every action an actor pursues a goal; and that whatever the goal may be, the fact that it is pursued by an actor reveals that he places a relatively higher value on it than on any other goal of action he could conceive of at the start of his action.

It is neither evident nor observable that in order to achieve his most highly valued goal an action must interfere or decide not to interfere (which, of course, is also an interference) at an earlier point in time to produce some later result; nor that such interferences invariably imply the employment of some scarce means (at least those of the actor's body, its standing room and the time absorbed by the interference).

It is neither self-evident nor can it be observed that these means must also have value for an actor—a value derived from that of the goal—because the actor must regard their employment as necessary in order to effectively achieve the goal; and that actions can only be performed sequentially, always involving the making of a choice, i.e., taking up that one course of action which at some given point in time promises the most highly valued result to the actor and excluding at the same time the pursuit of other, less highly valued goals.

It is not automatically clear or observable that as a consequence of having to choose and give preference to one goal over another—of not being able to realize all goals simultaneously—each and every action implies the incurrence of costs. For example, forsaking the value attached to the most highly valued alternative goal that cannot be realized or whose realization must be deferred because the means necessary to effect it are bound up in the production of another, even more highly valued goal.

And lastly, it is not plainly evident or observable that at its starting point every goal of action must be considered worth more to the actor than its cost and capable of yielding a profit, i.e., a result whose value is ranked higher than that of the foregone opportunities. And yet, every action is also invariably threatened by the possibility of a loss if an actor finds, in retrospect, that the result actually achieved—contrary to previous expectations—has a lower value than the relinquished alternative would have had.

All of these categories—values, ends, means, choice, preference, cost, profit and loss, as well as time and causality—are implied in the axiom of action. Yet, that one is able to interpret observations in such categories requires that one already knows what it means to act. No one who is not an actor could ever understand them. They are not "given," ready to be observed, but observational experience is cast in these terms as it is construed by an actor. Nor is their reflective reconstruction a simple, psychologically self-evident intellectual task, as proved by a long line of abortive attempts along the way to the just-outlined insights into the nature of action.

It took painstaking intellectual effort to recognize explicitly what, once made explicit, everybody recognizes immediately as true and can understand as true synthetic a priori statements, i.e., propositions that can be validated independently of observations and thus cannot possibly be falsified by any observation whatsoever.

The attempt to disprove the action-axiom would itself be an action aimed at a goal, requiring means, excluding other courses of action, incurring costs, subjecting the actor to the possibility of achieving or not achieving the desired goal and so leading to a profit or a loss.

And the very possession of such knowledge then can never be disputed, and the validity of these concepts can never be falsified by any contingent experience, for disputing or falsifying anything would already have presupposed their very existence. As a matter of fact, a situation in which these categories of action would cease to have a real existence could itself never be observed, for making an observation, too, is an action.'

- Hans-Herman Hoppe, Praxeology & Economic Science (Economic Science and the Austrian Method pdf)

...today the pressure is on to “do what aging gurus tell them to do, which is nothing”...

'In the face of discordant data, a scientist is required to check the original works and assumptions that lead to the theory under test. But there are very few such scientists in this modern age. As Sir Fred Hoyle put it, today the pressure is on to “do what aging gurus tell them to do, which is nothing” and simply build on the consensus those gurus have established.'

- Wal Thornhill, The Black Hole at the Heart of Astronomy, March 28, 2009

...a very searching examination...

'The history of science shows that the progress of science has constantly been hampered by the tyrannical influence of certain conceptions that finally come to be considered as dogma. For this reason, it is proper to submit periodically to a very searching examination, principles that we have come to assume without discussion.'

- Louis de Broglie, Revolution in Physics, 1953. (More)

...the Latin word “scientia” for “knowledge.”

'But remember that the word “science” isn’t derived from the Latin word for “replicated laboratory experiment,” but instead from the Latin word “scientia” for “knowledge.” '

- Jared Diamond, Why Did Human History Unfold Differently On Different Continents For The Last 13,000 Years? (More)

...scientia, correct knowledge...

'Science, after all, means scientia, correct knowledge; it is older and wiser than the positivist-pragmatist attempt to monopolize the term.

Surveying the attributes of the proper science of man as against scientism, one finds a shining, clear theory separating one from the other. The true science of man bases itself upon the existence of individual human beings, upon individual life and consciousness.'

- Murray N. Rothbard, The Mantle of Science (More)