Economics, Philosophy

The history of economic thought is fraught with stimulating methodological controversies, many of which occurred between different schools of thought that laid claim to the “correct” approach. Most notably, the Methodenstreit of the late-nineteenth century fundamentally challenged the role of theory in economic science, with the German Historical School, led by Gustav Schmoller, defending the historicist program against the newly developed theoretical system of the “Austrian School”,1 first introduced in Carl Menger’s Principles of Economics (1871). The significance of this debate is twofold: first, it established the Austrian School as a distinct tradition in the field of economics, and, more importantly, it called into question the possibility of identifying general principles applicable to all social phenomena.

Recognizing the consequential implications of the Methodenstreit for economic science, Ludwig von Mises, the most preeminent adherent of the Mengerian doctrine, set out to develop a methodology whose fundamental axioms and premises could claim “universal validity for all human action,”2 which he eventually termed praxeology; relying solely on deductive, a priori reasoning, Mises posited a set of apodictic propositions as the basis for all of economic theory. Thus, in his magnum opus, Human Action: A Treatise on Economics (1941), he writes:

Praxeology is a theoretical and systematic, not a historical, science. Its propositions and statements are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts.3

With the growing influence of the Vienna Circle,4 however, whose reconceptualization of classical empiricism demanded that all non-analytic propositions be open to testing, Mises’ contribution to economic methodology was looked upon with great skepticism. Although logical positivism later came to be criticized by such philosophers as Willard Van Orman Quine, the empiricist tendencies of the Vienna Circle prevailed throughout the twentieth century. Consequently, the praxeological research program was rendered moot if not completely irrelevant, and a highly mathematical approach to economic analysis was adopted in its place.5

The purpose of this article is to reassess praxeology in light of recent developments in the philosophy of science. More particularly, the methodological foundation laid by Ludwig von Mises will be contrasted with three proposals that have gained much prominence over the last half-century: the falsifiability criterion of Karl Popper, the paradigmatic thesis of Thomas Kuhn, and the three-part research programme of Imre Lakatos. The resulting exercise in comparative frameworks will attempt to illustrate the point of compatibility between praxeology, the Kuhnian paradigm, and the Lakatosian research programme while addressing the epistemological challenges posed by Popper’s demarcation criterion. Furthermore, the scientific legitimacy of praxeology will be upheld without compromising the essence of its core principles; no attempt will be made to recast the system in terms of the aforementioned proposals.

A brief overview of praxeology is prerequisite to a discussion of its current standing in the philosophy of science. The fundamental axiom of praxeology is the proposition that all people act, the concept of action here defined as purposeful behavior. Action is not a mere pursuit in which man may choose to partake but rather an inextricable condition of human existence; by virtue of possessing an individual consciousness, man cannot help but behave purposefully.6 The concept of action is thus logically prior to the apprehension of social phenomena, for no meaningful interpretation of human behavior could possibly arise without it; that is, social science is not concerned with the purely naturalistic facts about the relevant phenomena but rather their significance to a meaningful account of purposeful behavior. Mises explains:

[I]f we had not in our mind the schemes provided by praxeological reasoning, we should never be in a position to discern and to grasp any action. We would perceive motions, but neither buying nor selling, nor prices, wage rates, interest rates, and so on.7

The fundamental axiom of praxeology8 may therefore be called a priori in the sense that it must necessarily precede the formation of any meaningful account of human action.9 From this necessary truth of social science, a set of subsidiary axioms may be deduced with the aid of material logic,10 including but not limited to the law of diminishing marginal utility, the law of time preference, and the law of voluntary exchange, which form the nucleus of the praxeological schema.11 The identification of a few additional empirical postulates for the analysis of such phenomena as resource scarcity and the division of labor grants praxeology the unique status of universal applicability in the field of economics.

Since the publication of Karl Popper’s Conjectures and Refutations (1963), which expounds upon the so-called “falsificationist” approach to scientific methodology, a common objection to praxeology has been that its core principles preclude the possibility of empirical falsification and thus must be relegated to the domain of pseudoscience. According to the falsifiability criterion for scientific legitimacy, any system which approaches the world with an untestable, predetermined “schema of expectations”12 may find “confirming instances everywhere”13 and hence rely upon an endless series of ad hoc hypotheses in order to evade falsification. Citing historical materialism as an example of such an “all explanatory”14 theory, Popper writes:

A Marxist could not open a newspaper without finding on every page confirming evidence for his interpretation of history; not only in the news, but also in its presentation, which revealed the class bias of the paper.15

Unlike historical materialism, however, whose arbitrary assumptions allow the Marxist to decry all refutations of his theory as “bourgeois makeshifts,”16 the fundamental axiom of praxeology logically precedes every non-naturalistic interpretation of social phenomena and thus cannot be denied without abandoning the task of social science altogether; whereas historical materialism would have us believe in a mystical base-superstructure relation for the sake of explaining social revolutions,17 praxeology identifies the presuppositions necessary for making such observations at all.18 Hence, contrary to Popper’s falsifiability criterion, the epistemological status of the action axiom is precisely what renders praxeology a legitimate and indispensable science.

A still more troublesome aspect of the so-called “fallibilist” theory of knowledge advanced in Popper’s Conjectures and Refutations is the complete rejection of belief in the existence of universal laws which govern events. Referencing the Humean problem of induction, which describes the impossibility of drawing valid logical inferences from past experience, Popper attempts to explain away such laws by “an inborn propensity to look out for regularities, or a need to find regularities.”19 He writes:

[W]e are born with expectations; with ‘knowledge’ which, although not valid a priori, is psychologically or genetically a priori. One of the most important of these expectations is the expectation of finding a regularity.20

Hence, according to Popper, such fundamental principles as the law of causality are nothing more than a result of “this ‘instinctive’ expectation of finding regularities”21; they cannot be considered universally valid, for

we can easily construct an environment, which, compared with our ordinary environment, is so chaotic that we completely fail to find regularities.22

This view, however, erroneously conflates the law of causality with the particular spatio-temporal circumstances to which it applies; while Popper’s hypothetical environment may well be so chaotic and unlike our own as to render the identification of regularities nearly impossible, the principle of cause-and-effect would still pertain no less than it does in our universe; the a priori proposition, Every event has a cause, is not in any way synonymous with the apparently similar empirical proposition, The cause of every event is readily identifiable. Furthermore, human action necessarily presupposes the law of causality, for purposeful behavior is logically impossible without the expectation that the means employed will successfully realize the ends sought23; the Popperian scientist who calibrates his instruments for the purpose of collecting data in an endeavor to falsify the law of causality would inevitably fall into performative or pragmatic contradiction and thereby refute his own argument.

A brief discussion of the Kuhnian paradigm and the Lakatosian research programme will conclude this paper. According to Kuhn’s historiography of science, first introduced in his radical work, The Structure of Scientific Revolutions (1962), the Whiggish notion of unilinear scientific progress fails to address the manner in which science has actually evolved. In the Kuhnian view, the scientific community may be subdivided into various disciplines which operate within their own theoretical and methodological frameworks. Although these intricate apparatus often succeed at rendering intelligible the observed phenomena, certain unresolvable “anomalies”24 will occasionally plunge the accepted paradigms into a crisis situation and thereby generate widespread scientific revolutions.

It should be noted from the outset that praxeology shares many features with the Kuhnian paradigm, the most important of which is, using Lakatos’ terminology, an established “research programme”25 that directs scientific research and guides “puzzle-solving”26 activities. Indeed, from the nucleus or hard core of the praxeological schema, various fields of study such as price theory, monetary theory, and business cycle theory may be explored with the aid of analytical techniques developed for the purpose of explaining the relevant phenomena. If an apparent contradiction is found in the empirical data, a “protective belt”27 of auxiliary hypotheses may serve to modify some of the initial assumptions without threatening the integrity of the paradigm itself.

Contrary to Kuhn’s instrumentalist view of science, however, praxeology may claim applicability to all social phenomena and thus be considered a universally valid paradigm. Furthermore, unlike the Lakatosian research programme, the auxiliary hypotheses of praxeology need not be empirically testable, for they are derived from a set of necessarily true axioms and premises. Hence, the methodological structure of praxeology may be assessed in terms of both the Kuhnian paradigm and the Lakatosian research programme without compromising the essence of its core principles.

  1. A term which, incidentally, was devised by Schmoller in order to differentiate the adherents of the opposing doctrine from the members of the Historical School.
  2. Mises, Ludwig Von, and Bettina B. Greaves. Human Action: A Treatise on Economics (Indianapolis: Liberty Fund, Incorporated, 2014), p. 221.
  3. Ibid., p. 32.
  4. Ironically, Ludwig von Mises’ brother, Richard von Mises, who is best known for his work in applied mathematics, was a member of the Vienna Circle and contributed significantly to the development of logical positivism in the twentieth century.
  5. Hence the widespread employment of such complex techniques as dynamic stochastic general equilibrium modeling in contemporary macroeconomics.
  6. This, of course, does not imply that all human behavior is purposeful; such involuntary movements as breathing and digestion must be differentiated from voluntary action.
  7. Mises, Ludwig Von, and Bettina B. Greaves. Human Action: A Treatise on Economics (Indianapolis: Liberty Fund, Incorporated, 2014), p. 40.
  8. Which will henceforth be referred to as simply the action axiom.
  9. It should be noted that the much debated Kantian view of syntheticity need not be adopted in order to maintain the epistemological status of the action axiom in the praxeological schema; the Aristotelian conception of a priori as coming before in a series of propositions is consistent with praxeology despite not countenancing the existence of any innate principles of cognition.
  10. Unlike in mathematics, the process of logical deduction used in praxeology is not formal, for the content of each relevant proposition must be known in order to arrive at its necessary implications.
  11. The apparent similarity between this nucleus and the so-called hard core of the Lakatosian research programme will be briefly discussed later.
  12. Popper, Karl Raimund. Conjectures and Refutations: The Growth of Scientific Knowledge (London: Routledge, 2002), p. 49.
  13. Ibid., p. 35.
  14. Ibid., p. 39.
  15. Ibid., p. 35.
  16. Mises, Ludwig Von, and Bettina B. Greaves. Human Action: A Treatise on Economics (Indianapolis: Liberty Fund, Incorporated, 2014), p. 5.
  17. See Rothbard, The Fantasy Behind Marx’s Historical Materialism. In the Marxian dialectic, the relations of production which constitute the material base or substructure occasionally contradict with productive forces during periods of technological change, necessitating social revolution as a means of displacing the existing institutional superstructure. Marx, however, does not even attempt to qualify the assumption implicit in his theory that productive forces change independently of human consciousness; we are simply expected to adopt the impossible thesis that technological innovations materialize out of the ether without the aid of human ideas.
  18. See the discussion of praxeology above.
  19. Popper, Karl Raimund. Conjectures and Refutations: The Growth of Scientific Knowledge (London: Routledge, 2002), p. 47.
  20. Ibid., p. 47.
  21. Ibid., p. 47.
  22. Ibid., p. 48.
  23. Whether or not this expectation is proven correct ex-post by the outcome of action is irrelevant to the fact that it must necessarily precede all purposeful behavior; one could not even conceive of a world in which action is possible without such an initial expectation.
  24. Kuhn, Thomas S. The Structure of Scientific Revolutions (Chicago, IL: The University of Chicago Press, 2015), p. 97.
  25. Imre Lakatos, John Worrall, and Gregory Currie, The Methodology of Scientific Research Programmes (Cambridge: Cambridge Univ. Press, 1999), p. 4.
  26. Kuhn, Thomas S. The Structure of Scientific Revolutions (Chicago, IL: The University of Chicago Press, 2015), p. 42.
  27. Imre Lakatos, John Worrall, and Gregory Currie, The Methodology of Scientific Research Programmes (Cambridge: Cambridge Univ. Press, 1999), p. 4.