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Mises: Keep It Interesting

No, he was not talking about marriage. He was talking about an aspect of the praxeological approach to economics, in which we start with certain incontestable (apriori) propositions (related to human action and its categories), and we explicitly introduce certain contingent facts to make the inquiry interesting. For example,  we posit a society with money instead of a barter society. This insight of Mises has long intrigued me.

As I wrote in my article Knowledge, Calculation, Conflict, and Law (a review essay of Randy Barnett’s The Structure of Liberty):

… Barnett does not provide a rigorous argument showing where are the exact limits of the ability to deduce concrete rules. He evidently feels that the more abstract principles can, for some reason, be established by armchair theorists. If denizens of the ivory tower can do this, why can they not deduce or establish more concrete rules by simply considering more and more contextual facts? In the Roman law system—a somewhat decentralized legal system superior in many ways to the common law—Roman jurists (jurisconsults) helped develop the great body of Roman law by providing opinions on the best way to resolve disputes. These disputes were often purely hypothetical or imaginary cases, in which the jurists asked: “under such and such a possible or conceivable combination of circumstances, what would the law require?”[] It is conceivable that a large part or even all of the legal code existing in a given society can be “deduced” in this fashion, and then these rules applied like precedents to actual controversies as they arise. As a libertarian (and, I confess, a lawyer), I must say that I believe I would be more comfortable living under a set of concrete rules deduced by libertarian philosophers than the (perhaps more concrete) set of rules developed under the actual common law.

Still, Barnett’s argument in favor of a common-law system makes sense, even to libertarians who favor a deductive approach to rights …. Legal rules must be concrete in the sense that the rules must take into account the entire relevant factual context. Since there are an infinite number of factual situations that could exist in interactions between individuals, a process which focuses on actual cases or controversies is likely to produce the most “interesting” or useful rules.26 It probably makes little sense devoting scarce time and resources to developing legal precepts for imaginary or unrealistic scenarios. If nothing else, a common-law type system that develops and refines legal precepts as new cases arise serves as a sort of filter that selects which disputes (i.e., real, commonly-encountered ones) to devote attention to.

26This is analogous to Mises’s method selecting certain empirical assumptions (e.g., assuming there is money instead of barter) to develop “interesting” laws based on the fundamental axioms of praxeology, rather than irrelevant or uninteresting (though not invalid) laws. …

(See also my post The Limits of Armchair Theorizing: The case of Threats; for further discussion of the role of codes and jurists, see my Legislation and Law in a Free Society and the longer version, Legislation and the Discovery of Law in a Free Society.)

In note 26 I cited three of Mises’s works, from which I provide quotations below. As Mises wrote in chapter 2, sec. 5 of The Ultimate Foundation of Economic Science:

There are two branches of the sciences of human action, praxeology on the one hand, history on the other hand.

Praxeology is a priori. It starts from the a priori category of action and develops out of it all that it contains. For practical reasons praxeology does not as a rule pay much attention to those problems that are of no use for the study of the reality of man’s action, but restricts its work to those problems that are necessary for the elucidation of what is going on in reality. Its intent is to deal with action taking place under conditions that acting man has to face. This does not alter the purely aprioristic character of praxeology. It merely circumscribes the field that the individual praxeologists customarily choose for their work. They refer to experience only in order to separate those problems that are of interest for the study of man as he really is and acts from other problems that offer a merely academic interest. The answer to the question whether or not definite theorems of praxeology apply to a definite problem of action depends on the establishment of the fact whether or not the special assumptions that characterize this theorem are of any value for the cognition of reality. To be sure, it does not depend on the answer to the question whether or not these assumptions correspond to the real state of affairs that the praxeologists want to investigate.

See also Epistemological Problems of Economics, Chapter 1.I.6:

it would be possible to construct, by the use of the axiomatic method, a universal praxeology so general that its system would embrace not only all the patterns of action in the world that we actually encounter, but also patterns of action in worlds whose conditions are purely imaginary and do not correspond to any experience. A theory of money would still be meaningful even if throughout history there had never been any indirect exchange. That such a theory would have no practical importance in a world that did not use money would in no way detract from the truth of its statements. Because we study science for the sake of real life–and, it should be remembered, the desire for pure knowledge for its own sake is also a part of life–and not as a form of mental gymnastics, we generally do not mind forgoing the gratification that could be offered by a perfect, comprehensive system of the axioms of human action, a system so universal that it would comprise all thinkable categories of the conditions of action. Instead, we are satisfied with the less universal system that refers to the conditions given in the world of experience.

Nevertheless, this reference to experience in no way changes the aprioristic character of our knowledge. In this connection, experience is of absolutely no concern to our thinking. All that we owe to experience is the demarcation of those problems that we consider with interest from problems that we wish to leave aside because they are uninteresting from the point of view of our desire for knowledge. Hence, experience by no means always refers to the existence or nonexistence of the conditions of action, but often only to the presence of an interest in the treatment of a problem. In experience there is no socialist community; nevertheless, the investigation of the economy of such a community is a problem that in our age arouses the greatest of interest.

A theory of action could conceivably be constructed on the assumption that men lacked the possibility of understanding one another by means of symbols, or on the assumption that men–immortal and eternally young–were indifferent in every respect to the passage of time and therefore did not consider it in their action. The axioms of the theory could conceivably be framed in such universal terms as to embrace these and all other possibilities; and it would be conceivable to draw up a formal praxeological system patterned after the science of logic or the science built upon the axioms of, for example, Hilbertian geometry. We forgo these possibilities because conditions that do not correspond to those we encounter in our action interest us only in so far as thinking through their implications in imaginary constructions enables us to further our knowledge of action under given conditions.

Chapter 1.II.3:

The science of action deals only with those problems whose solution directly or indirectly affects practical interests. It does not concern itself, for reasons already explained, with the complete development of a comprehensive system embracing all the conceivable categories of action in their broadest generality. The peculiar advantage of this procedure is that, by giving preference to the problems encountered under the actual conditions in which action takes place, our science is obliged to direct its attention to the facts of experience. It is thereby prevented from forgetting that one of its tasks consists in the determination of the boundary between the conditions of action accessible to and requiring categorial comprehension, on the one hand, and the concrete data of the individual case, on the other.

Chapter 2.3:

If the conditions that Gresham’s law assumes are not given, then action such as the law describes does not take place. If the actor does not know the market value differing from the legally controlled value, or if he does not know that he may make his payments in money that is valued lower by the market, or if he has another reason for giving the creditor more than is due him–for example, because he wants to give him a present, or because he fears violent acts on the part of the creditor–then the assumptions of the law do not apply. Experience teaches that for the mass of debtor-creditor relationships these assumptions do apply. But even if experience were to show that the assumed conditions are not given in the majority of cases, this could in no way weaken the chain of reasoning that has led to the construction of the law or deprive the law of the importance that is its due. However, whether or not the conditions assumed by the law are given, and whether or not action such as the law describes takes place, “purely purposive-rational” action occurs in any case. Even one who gives the creditor a present or who avoids the threat of an extortionist acts rationally and purposively, as does one who acts differently, out of ignorance, from the way he would act if he were better informed.

Gresham’s law represents the application to a particular case of laws of catallactics that are valid without exception always and everywhere, provided acts of exchange are assumed. If they are conceived imperfectly and inexactly as referring only to direct and immediate monetary gain-if, for example, they are interpreted to mean that one seeks to purchase and to pay one’s debts as cheaply as possible and to sell as dearly as possible-then, of course, they must still be supplemented by a series of further propositions if one wants to explain, let us say, the particularly cheap prices of advertised articles offered by department stores in order to attract customers. No one, however, can deny that in this case too the department stores proceed “purely rationally” and purposively on the basis of cool consideration.

Also Human Action, ch. 2, sec. 10:

A theory of indirect exchange and all further theories built upon it–as the theory of circulation credit–are applicable only to the interpretation of events within a world in which indirect exchange is practiced. In a world of barter trade only it would be mere intellectual play. It is unlikely that the economists of such a world, if economic science could have emerged at all in it, would have given any thought to the problems of indirect exchange, money, and all the rest. In our actual world, however, such studies are an essential part of economic theory.

The fact that praxeology, in fixing its eye on the comprehension of reality, concentrates upon the investigation of those problems which are useful for this, does not alter the aprioristic character of its reasoning. But it marks the way in which economics, up to now the only elaborated part of praxeology, presents the results of its endeavors.

Economics does not follow the procedure of logic and mathematics. It does not present an integrated system of pure aprioristic ratiocination severed from any reference to reality. In introducing assumptions into its reasoning, it satisfies itself that the treatment of the assumptions concerned can render useful services for the comprehension of reality. It does not strictly separate in its treatises and monographs pure science from the application of its theorems to the solution of concrete historical and political problems. It adopts for the organized presentation of its results a form in which aprioristic theory and the interpretation of historical phenomena are intertwined.

See also Hans-Hermann Hoppe,  A Theory of Socialism and Capitalism, pp. 9-10:

At the end of the treatise it should be clear that only by means of a theory, economic or moral, which is not itself derived from experience but rather starts from a logically incontestable statement (which is something very different from an “arbitrarily postulated axiom”) and proceeds in a purely deductive way (perhaps using some explicitly introduced empirical and empirically testable assumption, in addition) to results which are themselves logically unassailable (and thus require no empirical testing whatsoever), will it become possible to organize or interpret an otherwise chaotic, overly complex array of unconnected, isolated facts or opi ions about social reality to form a true, coherent economic or moral conceptual system.

And at p. 142:

Economic analysis, and the economic analysis of socialism in particular, has as its foundation this a priori knowledge of the meaning of action as well as its logical constituents. Essentially, economic analysis consists of: (1) an understanding of the categories of action and an understanding of the meaning of a change in values, costs, technological knowledge, etc.; (2) a description of a situation in which these categories assume concrete meaning, where definite people are identified as actors with definite objects specified as their means of action, with definite goals identified as values and definite things specified as costs; and (3) a deduction of the consequences that result from the performance of some specified action in this situation, or of the consequences that result for an actor if this situation is changed in a specified way. And this deduction must yield a priori-valid conclusions, provided there is no flaw in the very process of deduction and the situation and the change introduced into it being given, and a priori-valid conclusions about reality if the situation and situation-change, as described, can themselves be identified as real, because then their validity would ultimately go back to the indisputable validity of the categories of action.

And Hoppe, Economic Science and the Austrian Method:

Praxeology says that all economic propositions which claim to be true must be shown to be deducible by means of formal logic from the incontestably true material knowledge regarding the meaning of action. Specifically, all economic reasoning consists of the following:

(1) an understanding of the categories of action and the meaning of a change occurring in such things as values, preferences, knowledge, means, costs, etc;
(2) a description of a world in which the categories of action assume concrete meaning, where definite people are identified as actors with definite objects specified as their means of action, with some definite goals identified as values and definite things specified as costs. Such description could be one of a Robinson Crusoe world, or a world with more than one actor in which interpersonal relationships are possible; of a world of barter exchange or of money and exchanges that make use of money as a common medium of exchange; of a world of only land, labor, and time as factors of production, or a world with capital products; of a world with perfectly divisible or indivisible, specific or unspecific factors of production; or of a world with diverse social institutions, treating diverse actions as aggression and threatening them with physical punishment, etc; and
(3) a logical deduction of the consequences which result from the performance of some specified action within this world, or of the consequences which result for a specific actor if this situation is changed in a specified way.

Provided there is no flaw in the process of deduction, the conclusions that such reasoning yield must be valid a priori because their validity would ultimately go back to nothing but the indisputable axiom of action. If the situation and the changes introduced into it are fictional or assumptional (a Robinson Crusoe world, or a world with only indivisible or only completely specific factors of production), then the conclusions are, of course, a priori true only of such a “possible world.” If, on the other hand, the situation and changes can be identified as real, perceived and conceptualized as such by real actors, then the conclusions are a priori true propositions about the world as it really is.

And finally, Hoppe, The Ultimate Justification of the Private Property Ethic:

Ludwig von Mises, in his masterpiece Human Action, explains the entire body of economic theory as implied in, and deducible from, a conceptual understanding of the meaning of action, plus a few general, explicitly introduced assumptions about the empirical reality in which action is taking place.

[Mises blog cross-post]

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