Property, Contract, Aggression, Capitalism, Socialism

Hans-Hermann Hoppe

Before advancing to the more exciting field of analyzing diverse policy schemes from the standpoint of economic theory and political philosophy, it is essential to introduce and explain the basic concepts used throughout the following study. Indeed, the concepts explained in this chapter—the concepts of property, contract, aggression, capitalism and socialism—are so basic, so fundamental, that one cannot even avoid making use of them, if at times only implicitly. Unfortunately, though, the very fact that in analyzing any kind of human action and/or any kind of interpersonal relationship one must make use of these concepts does not imply that everyone has a precise understanding of them. It seems instead to be the other way around.
Because the concept of property, for instance, is so basic that everyone seems to have some immediate understanding of it, most people never think about it carefully and can, as a consequence, produce at best a very vague definition. But starting from imprecisely stated or assumed definitions and building a complex network of thought upon them can lead only to intellectual disaster. For the original imprecisions and loopholes will then pervade and distort everything derived from them. To avoid this, the concept of property must first be clarified.
Next to the concept of action, property is the most basic category in the social sciences. As a matter of fact, all other concepts to be introduced in this chapter—aggression, contract, capitalism and socialism—are definable in terms of property: aggression being aggression against property, contract being a nonaggressive relationship between property owners, socialism being an institutionalized policy of aggression against property, and capitalism being an institutionalized policy of the recognition of property and contractualism.
Let us start with an elucidation of the precondition necessary for the concept of property to emerge.4 For a concept of property to arise, there must be a scarcity of goods. Should there be no scarcity, and should all goods be so-called “free goods” whose use by any one person for any one purpose would not in any way exclude (or interfere with or restrict) its use by any other person or for any other purpose, then there would be no need for property. If, let us say, due to some paradisiac superabundance of bananas, my present consumption of bananas does not in any way reduce my own future supply (possible consumption) of bananas, nor the present or the future supply of bananas for any other person, then the assignment of property rights, here with respect to bananas, would be superfluous. To develop the concept of property, it is necessary for goods to be scarce, so that conflicts over the use of these goods can possibly arise. It is the function of property rights to avoid such possible Clashes over the use of scarce resources by assigning rights of exclusive ownership. Property is thus a normative concept: a concept designed to make a conflict-free interaction possible by stipulating mutually binding rules of conduct (norms) regarding scarce resources.5 It does not need much comment to see that there is indeed scarcity of goods, of all sorts of goods, everywhere, and the need for property rights is thus evident. As a matter of fact, even if we were to assume that we lived in the Garden of Eden, where there was a superabundance of everything needed not only to sustain one’s life but to indulge in every possible comfort by simply stretching out one’s hand, the concept of property would necessarily have to evolve. For even under these “ideal” circumstances, every person’s physical body would still be a scarce resource and thus the need for the establishment of property rules, i.e., rules regarding people’s bodies, would exist. One is not used to thinking of one’s own body in terms of a scarce good, but in imagining the most ideal situation one could ever hope for, the Garden of Eden, it becomes possible to realize that one’s body is indeed the prototype of a scarce good for the use of which property rights, i.e., rights of exclusive ownership, somehow have to be established, in order to avoid clashes.
As a matter of fact, as long as a person acts,6 i.e., as long as a person intentionally tries to change a state of affairs that is subjectively perceived and evaluated as less satisfactory into a state that appears more rewarding, this action necessarily involves a choice regarding the use of this person’s body. And choosing, preferring one thing or state over another, evidently implies that not everything, not all possible pleasures or satisfactions, can be had at one and the same time, but rather that something considered less valuable must be given up in order to attain something else considered to be more valuable.7 Thus choosing always implies the incurrence of costs: foregoing possible enjoyments because the means needed to attain them are scarce and are bound up in some alternative use which promises returns valued more highly than the opportunities forfeited.8 Even in the Garden of Eden I could not simultaneously eat an apple, smoke a cigarette, have a drink, climb up a tree, read a book, build a house, play with my cat, drive a car, etc. I would have to make choices and could do things only sequentially. And this would be so because there is only one body that I can use to do these things and enjoy the satisfaction derived from doing them. I do not have a superabundance of bodies which would allow me to enjoy all possible satisfactions simultaneously, in one single bliss. And I would be restrained by scarcity in another respect as well: as long as this scarce resource “body” is not indestructible and is not equipped with eternal health and energy, but rather is an organism with only a limited life span, time is scarce, too. The time used up in pursuing goal A reduces the time left to pursue other goals. And the longer it takes to reach a desired result, the higher the costs involved in waiting will be, and the higher the expected satisfaction must be in order to justify these costs.
Thus, because of the scarcity of body and time, even in the Garden of Eden property regulations would have to be established. Without them, and assuming now that more than one person exists, that their range of action overlaps, and that there is no pre-established harmony and synchronization of interests among these persons, conflicts over the use of one’s own body would be unavoidable. I might, for instance, want to use my body to enjoy drinking a cup of tea, while someone else might want to start a love affair with it, thus preventing me from having my tea and also reducing the time left to pursue my own goals by means of this body. In order to avoid such possible clashes, rules of exclusive ownership must be formulated. In fact, so long as there is action, there is a necessity for the establishment of property norms.
To keep things simple and free of distracting details let us continue to assume, for another stretch of analysis, that we indeed inhabit a Garden of Eden, where exclusively one’s body, its standing room, and time are scarce resources. What can the prototype of a scarce good, a person’s body, tell us about property and its conceptual derivatives?
While even in a world with only one type of scarce resource all sorts of norms regulating exclusive ownership with respect to scarce means are conceivable in principle (for example, a rule such as “On Mondays I determine to which uses our bodies can be put, on Tuesdays you determine their use,” etc.), it is certain that not all of them would in fact have the same chance of being proposed and accepted. It then seems to be best to start one’s analysis with the property norm, which would most likely be accepted by the inhabitants of Eden as the “natural position” regarding the assignment of rights of exclusive ownership in bodies. To be sure, at this stage of the argument we are not yet concerned with ethics, with the problem of the moral justification of norms. Thus, while it can well be admitted from the very outset that I am indeed going to argue later on that the natural position is the only morally defendable one, and while I am also convinced that it is the natural one because it is morally defendable, at this stage, natural does not imply any moral connotation. It is simply meant to be a socio-psychological category used to indicate that this position would probably find the most support in public opinion.9 Indeed; its naturalness is reflected by the very fact that in talking about bodies, it is almost impossible to avoid using possessive (possession-indicating) expressions as well. A body is normally referred to as a specific person’s body: my body, yours, his, etc. (and, incidentally, the same is done whenever one speaks of actions!); and one does not have the slightest problem distinguishing what is mine, yours, etc.; clearly, in doing so, one is assigning property-titles and distinguishing between proper owners of scarce resources.
What, then, is the natural position regarding property implicit in one’s natural way of speaking about bodies? Every person has the exclusive right of ownership of his body within the boundaries of its surface. Every person can put his body to those uses that he thinks best for his immediate or long-run interest, well-being, or satisfaction, as long as he does not interfere with another person’s rights to control the use of his/her respective body. This “ownership” of one’s own body implies one’s right to invite (agree to) another person’s doing something with (to) one’s own body: my right to do with my body whatever I want, that is, includes the right to ask and let someone else use my body, love it, examine it, inject medicines or drugs into it, change its physical appearance and even beat, damage, or kill it, if that should be what I like and agree to. Interpersonal relationships of this sort are and will be called contractual exchanges. They are characterized by the fact that an agreement on the use of scarce resources is reached, which is based on mutual respect and recognition of each and all of the exchanging partners’ domain of exclusive control over their respective bodies. By definition, such contractual exchanges, while not necessarily advantageous for each and all of the exchanging partners in retrospect (I might not like my looks afterwards, even though the surgeon did exactly what I told him to do to my face), are always, and necessarily so, mutually advantageous for every participant ex ante, otherwise the exchange simply would not take place.
If, on the other hand, an action is performed that uninvitedly invades or changes the physical integrity of another person’s body and puts this body to a use that is not to this very person’s own liking, this action, according to the natural position regarding property, is called aggression.10 It would be aggression if a person tried to satisfy his sexual or sadistic desires by raping or beating another person’s body without having this person’s explicit consent. And it would be aggression as well, if a person were physically stopped from performing certain actions with his body which might not be to someone else’s liking, such as wearing pink socks or curly hair, or getting drunk every day, or first sleeping and then philosophizing instead of doing it the other way around, but which, if indeed performed, would not in itself cause a change in the physical integrity of any other person’s body.11 By definition, then, an aggressive act always and necessarily implies that a person, by performing it, increases his/her satisfaction at the expense of a decrease in the satisfaction of another person.
What is the underlying rationale of this natural position regarding property? At the bottom of the natural property theory lies the idea of basing the assignment of an exclusive ownership right on the existence of an objective, intersubjectively ascertainable link between owner and the property owned and, mutatis mutandis, of calling all property claims that can only invoke purely subjective evidence in their favor aggressive. While I can cite in favor of my property claim regarding my body the objective fact that I was the body’s first occupant—its first user—anyone else who claims to have the right to control this body can cite nothing of the sort. No one could call my body a product of his will, as I could claim it to be the product of mine; such a claim to the right to determine the use of the scarce resource “my body” would be a claim of nonusers, of nonproducers, and would be based exclusively on subjective opinion, i.e., on a merely verbal declaration that things should be this or that way. Of course, such verbal claims could (and very likely always will) point to certain facts, too (“I am bigger, I am smarter, I am poorer or I am very special, etc.!”), and could thereby try to legitimize themselves. But facts such as these do not (and cannot) establish any objective link between a given scarce resource and any particular person(s). Everyone’s ownership of every particular resource can equally well be established or excluded on such grounds. It is such property claims, derived from thin air, with purely verbal links between owners and things owned, which, according to the natural theory of property, are called aggressive. As compared with this, my property claim regarding my body can point to a determinate natural link; and it can do so because my body has been produced, and everything produced (as contrasted with things “given”), logically, has a determinate connection with some definite individual producer(s); it has been produced by me. To avoid any misunderstanding, ‘to produce” is not to say “to create out of nothing” (after all, my body is also a naturally given thing); it means to change a naturally given thing according to a plan, to transform nature. It is also not to say “to transform each and every part of it” (after all, my body has lots of parts with respect to which I never did anything!); it means instead to transform a thing within (including/excluding) borders, or, even more precisely, to produce borderlines for things. And finally, “to produce” also is not to say that the process of production must go on indefinitely (after all, I am sleeping sometimes, and my body is certainly not a product of my actions right then]), it simply means that it was produced in the past and can be recognized as such. It is such property claims, then, which can be derived from past, embordering productive efforts and which can be tied to specific individuals as producers, which recalled “natural” or “nonaggressive.”12
The ideas of capitalism and socialism should be almost clear at this point. But before leaving the Garden of Eden once and for all, a look at the consequences of the introduction of elements of aggressively founded ownership into paradise should be taken, as this will help elucidate, purely and simply, the central economic and social problem of every type of real socialism, i.e., of socialism in a world of all-around scarcity, the detailed analysis of which then is the concern of the following chapters.
Even in the land of milk and honey, people evidently could choose different lifestyles, set different goals for themselves, have different standards as to what kind of personality they want to develop and what achievements to strive for. True, one would not need to work in order to make a living as there would be a superabundance of everything. But, put drastically, one could still choose to become a drunk or a philosopher, which is to say, more technically, one could choose to put one’s body to uses that would be more or less immediately rewarding from the point of view of the acting person, or one could put one’s body to such uses which would only bear fruit in a more or less distant future. Decisions of the afore-mentioned type might be called “consumption decisions.” Decisions, on the other hand, to put one’s body to a use that only pays later, i.e., choices induced by some reward or satisfaction anticipated in a more or less distant future requiring the actor to overcome disutility of waiting (time is scarce!), might be called “investment” decisions—decisions, that is, to invest in “human capital,” in the capital embodied in one’s own physical body.13 Now assume that aggressively founded ownership is introduced. Whereas before every person was the exclusive owner of his body and could decide on his own whether to become a drunk or a philosopher, now a system is established in which a person’s right to determine how to use his body is curtailed or completely eliminated, and instead, this right is partly or fully delegated to another person who is not naturally linked to the respective body as its producer. What would be the consequence of this? The abolition of private ownership of one’s body can be far-reaching: the nonproducers can have the right to determine all of the uses of “my” body all of the time, or their right to do so can be restricted with respect to time and/or domains, and these restrictions again can be flexible (with the nonproducers having the right to change the restrictive definitions according to their own taste) or fixed once and for all, and so the effects can, of course, be more or less drastic! But whatever the degree, socialization of ownership always, and necessarily so, produces two types of effects. The first effect, “economic” in the narrower sense of the term, is a reduction in the amount of investment in human capital as defined above. The natural owner of a body cannot help but make decisions regarding that body as long as he does not commit suicide and decides to stay alive, however restricted his ownership rights might be. But since he can no longer decide on his own, undisturbed by others, to what uses to put his body, the value attached to it by him is now lower; the wanted satisfaction, the psychic income, that is to say, which he can derive from his body by putting it to certain uses is reduced because the range of options available to him has been limited. But then, with every action necessarily implying costs (as explained above), and with a given inclination to overcome costs in exchange for expected rewards or profits, the natural owner is faced with a situation in which the costs of action must be reduced in order to bring them back in line with the reduced expected income. In the Garden of Eden, there is only one way left to do this: by shortening the waiting time, reducing the disutility of waiting, and choosing a course of action that promises earlier returns. Thus, the introduction of aggressively founded ownership leads to a tendency to reduce investment decisions and favors consumption decisions. Put drastically, it leads to a tendency to turn philosophers into drunks. This tendency is permanent and more pronounced when the threat of intervention with the natural owner’s rights is permanent, and it is less so to the degree that the threat is restricted to certain times or domains. In any case, though, the rate of investment in human capital is lower than it would be with the right of exclusive control of natural owners over their bodies being untouched and absolute.
The second effect might be called social. The introduction of elements of aggressively founded ownership implies a change in the social structure, a change in the composition of society with respect to personality or character types. Abandoning the natural theory of property evidently implies a redistribution of income. The psychic income of persons in their capacity as users of their “own” natural body, as persons expressing themselves in this body and deriving satisfaction from doing so, is reduced at the expense of an increase in the psychic income of persons in their capacity as invaders of other peoples’ bodies. It has become relatively more difficult and costly to derive satisfaction from using one’s body without invading that of others, and relatively less difficult and costly to gain satisfaction by using other peoples’ bodies for one’s own purposes. This fact alone does not imply any social change, but once a single empirical assumption is made, it does: Assuming that the desire to gain satisfaction at the expense of a loss in satisfaction available to others by instrumentalizing another person’s body exists as a human desire, that it may not be instilled in everybody and to the same extent, but that it exists in some people sometimes to some degree and so conceivably can be suppressed or encouraged and favored by some given institutional arrangement, consequences are imminent. And surely, this assumption is true. Then, the redistribution of chances for income acquisition must result in more people using aggression to gain personal satisfaction and/or more people becoming more aggressive, i.e., shifting increasingly from nonaggressive to aggressive roles, and slowly changing their personality as a consequence of this; and this change in the character structure, in the moral composition of society, in turn leads to another reduction in the level of investment in human capital.
In short, with these two effects we have already pinpointed the most fundamental reasons for socialism’s being an economically inferior system of property arrangements. Indeed, both effects will reappear again and again in the course of the following analyses of socialist policy schemes. All that is left now is to explain the natural theory of property as regards the real world of all around scarcity, for this is the point of departure for all forms of real socialism.
Notwithstanding some evident differences between bodies and all other scarce resources, all conceptual distinctions can be made and applied again without difficulties: Unlike bodies, which are never “unowned” but always have a natural owner, all other scarce resources can indeed be unowned. This is the case as long as they remain in their natural state, unused by anyone. They only become someone’s property once they are treated as scarce means, that is, as soon as they are occupied in some objective borders and put to some specific use by someone. This act of acquiring previously unowned resources is called “original appropriation.”14 Once unowned resources are appropriated it becomes an aggression to uninvitedly change their physical characteristics or to restrict the owner’s range of uses to which he can put these resources, as long as a particular use does not affect the physical characteristics of anyone else’s property—just as in the case of bodies. Only in the course of a contractual relationship, i.e., when the natural owner of a scarce means explicitly agrees, is it possible for someone else to utilize and change previously acquired things. And only if the original or previous owner deliberately transfers his property title to someone else, either in exchange for something or as a free gift, can this other person himself become the owner of such things. Unlike bodies, though, which for the same “natural” reason can never be unowned and also can never be parted with by the natural owner completely but only be “lent out” as long as the owners’ agreement lasts, naturally all other scarce resources can be “alienated” and a property title for them can be relinquished once and for all.15
A social system based on this natural position regarding the assignment of property rights is, and will from now on be called pure capitalist. And since its ideas can also be discerned as the dominating ideas of private law, i.e., of the norms regulating relations between private persons, it might also be termed a pure private law system.16 This system is based on the idea that to be nonaggressive, claims to property must be backed by the “objective” fact of an act of original appropriation, of previous ownership, or by a mutually beneficial contractual relationship. This relationship can either be a deliberate cooperation between property owners or the deliberate transfer of property titles from one owner to another. If this system is altered and instead a policy is instituted that assigns rights of exclusive control over scarce means, however partial, to persons or groups of persons that can point neither to an act of previous usership of the things concerned, nor to a contractual relation with some previous user-owner, then this will be called (partial) socialism.
It will be the task of the next four chapters to explain how different ways of deviating from a pure capitalist system, different ways of redistributing property titles away from natural owners of things (i.e., from people who have put some particular resources to a specific use and so are naturally linked to them, and onto people who have not yet done anything with the resources but who have simply made a verbal, declarative claim regarding them) lowers investment and increases consumption, and in addition causes a change in the composition of the population by favoring nonproductive over productive people.

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ON PRAXEOLOGY AND THE PRAXEOLOGICAL FOUNDATION OF EPISTEMOLOGY IV

Hans-Hermann Hoppe

In so establishing the place of praxeology proper, I have come full circle in outlining the system of rationalist philosophy as ultimately grounded in the action axiom. It has been my goal here to reaffirm Mises’s claim that economics is praxeology; that the case for praxeology is an indisputable one; and that empiricist or historicist-hermeneuticist interpretations of economics are self-contradictory doctrines. And it has been my objective to indicate that the Misesian insight into the nature of praxeology also provides the very foundation on which traditional rationalist philosophy can be successfully reconstructed, and systematically integrated.

For the rationalist philosopher this would seem to imply that he should take account of praxeology. For it is precisely the insight into the praxeological constraints on the structure of knowledge which provides the missing link in his intellectual defense against skepticism and relativism. For the economist in the tradition of Mises it means, I claim, that he should explicitly come to recognize his place within the wider tradition of western rationalism; and that he should learn to incorporate the insights provided by this tradition in order to construct an even more impressive and profound case for praxeology and Austrian economics than the one made by the great Mises himself.

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ON PRAXEOLOGY AND THE PRAXEOLOGICAL FOUNDATION OF EPISTEMOLOGY III

Hans-Hermann Hoppe

This will suffice here as an explanation of Mises’s answer regarding the quest for the foundations of economics. I shall now turn to my second goal: the explanation of why and how praxeology also provides the foundation for epistemology Mises had been aware of this and he was convinced of the great importance of this insight for rationalist philosophy. Yet Mises did not treat the matter in a systematic fashion. There are no more than a few brief remarks concerning this problem, interspersed throughout his massive body of writing.53 Thus, in the following I must try to break new ground.

I shall begin my explanation by introducing a second a priori axiom and clarifying its relation to the axiom of action. Such an understanding is the key to solving our problem. The second axiom is the so-called “a priori of argumentation,” which states that humans are capable of argumentation and hence know the meaning of truth and validity.54 As in the case of the action axiom, this knowledge is not derived from observation: there is only verbal behavior to be observed and prior reflective cognition is required in order to interpret such behavior as meaningful arguments. And the validity of the axiom, like that of the action axiom, is indisputable. It is impossible to deny that one can argue, as the very denial would itself be an argument. In fact, one could not even silently say to oneself “I cannot argue” without thereby contradicting oneself. One cannot argue that one cannot argue. Nor can one dispute knowing what it means to make a truth or validity claim without implicitly claiming the negation of this proposition to be true.

It is not difficult to detect that both a priori axioms—of action and argumentation—are intimately related. On the one hand, actions are more fundamental than argumentations with whose existence the idea of validity emerges, as argumentation is only a subclass of action. On the other hand, to recognize what has just been recognized regarding action and argumentation and their relation to each other requires argumentation, and so, in this sense, argumentation must be considered more fundamental than action: without argumentation nothing could be said to be known about action. But then, as it is in argumentation that the insight is revealed that—while it might not be known to be so prior to any argumentation—in fact the possibility of argumentation presupposes action in that validity claims can only be explicitly discussed in the course of an argumentation if the individuals doing so already know what it means to act and to have knowledge implied in action—both the meaning of action in general and argumentation in particular must be thought of as logically necessary interwoven strands of a priori knowledge.

What this insight into the interrelation between the a priori of action and the a priori of argumentation suggests is the following: Traditionally, the task of epistemology has been conceived of as that of formulating what can be known to be true a priori and also what can be known a priori not to be the subject of a priori knowledge. Recognizing, as we have just done, that knowledge claims are raised and decided upon in the course of argumentation and that this is undeniably so, one can now reconstruct the task of epistemology more precisely as that of formulating those propositions which are argumentatively indisputable in that their truth is already implied in the very fact of making one’s argument and so cannot be denied argumentatively; and to delineate the range of such a priori knowledge from the realm of propositions whose validity cannot be established in this way but require additional, contingent information for their validation, or that cannot be validated at all and so are mere metaphysical statements in the pejorative sense of the term metaphysical.

Yet what is implied in the very fact of arguing? It is to this question that our insight into the inextricable interconnection between the a priori of argumentation and that of action provides an answer: On a very general level, it cannot be denied argumentatively that argumentation presupposes action and that arguments, and the knowledge embodied in them, are those of actors. And more specifically, it cannot then be denied that knowledge itself is a category of action; that the structure of knowledge must be constrained by the peculiar function which knowledge fulfills within the framework of action categories; and that the existence of such structural constraints can never be disproved by any knowledge whatsoever.

It is in this sense that the insights contained in praxeology must be regarded as providing the foundations of epistemology Knowledge is a category quite distinct from those that I have explained earlier—from ends and means. The ends which we strive to attain through our actions, and the means which we employ in order to do so, are both scarce values. The values attached to our goals are subject to consumption and are exterminated and destroyed in consumption and thus must forever be produced anew. And the means employed must be economized, too. Not so, however, with respect to knowledge—regardless of whether one considers it a means or an end in itself. Of course, the acquisition of knowledge requires scarce means—at least one’s body and time. Yet once knowledge is acquired, it is no longer scarce. It can neither be consumed, nor are the services that it can render as a means subject to depletion. Once there, it is an inexhaustible resource and incorporates an everlasting value provided that it is not simply forgotten.55 Yet knowledge is not a free good in the same sense that air, under normal circumstances, is a free good. Instead, it is a category of action. It is not only a mental ingredient of each and every action, quite unlike air, but more importantly, knowledge, and not air, is subject to validation, which is to say that it must prove to fulfill a positive function for an actor within the invariant constraints of the categorical framework of actions. It is the task of epistemology to clarify what these constraints are and what one can thus know about the structure of knowledge as such.

While such recognition of the praxeological constraints on the structure of knowledge might not immediately strike one as in itself of great significance, it does have some highly important implications. For one thing, in light of this insight one recurring difficulty of rationalist philosophy finds its answer. It has been a common quarrel with rationalism in the Leibniz-Kant tradition that it seemed to imply some sort of idealism. Realizing that a priori true propositions could not possibly be derived from observations, rationalism answered the question how a priori knowledge could then be possible by adopting the model of an active mind, as opposed to the empiricist model of a passive, mirror-like mind in the tradition of Locke and Hume. According to rationalist philosophy, a priori true propositions had their foundation in the operation of principles of thinking which one could not possibly conceive of as operating otherwise; they were grounded in categories of an active mind. Now, as empiricists were only too eager to point out, the obvious critique of such a position is, that if this were indeed the case, it could not be explained why such mental categories should fit reality Rather, one would be forced to accept the absurd idealistic assumption that reality would have to be conceived of as a creation of the mind, in order to claim that a priori knowledge could incorporate any information about the structure of reality And clearly, such an assertion seemed to be justified when faced with programmatic statements of rationalist philosophers such as the following by Kant: “So far it has been assumed that our knowledge had to conform to reality” instead it should be assumed “that observational reality should conform to our mind.”56

Recognizing knowledge as being structurally constrained by its role in the framework of action categories provides the solution to such a complaint. For as soon as this is realized, all idealistic suggestions of rationalist philosophy disappear, and an epistemology claiming that a priori true propositions exist becomes a realistic epistemology instead. Understood as constrained by action categories, the seemingly unbridgeable gulf between the mental on the one hand and the real, outside physical world on the other is bridged. So constrained, a priori knowledge must be as much a mental thing as a reflection of the structure of reality, since it is only through actions that the mind comes into contact with reality, so to speak. Acting is a cognitively guided adjustment of a physical body in physical reality. And thus, there can be no doubt that a priori knowledge, conceived of as an insight into the structural constraints imposed on knowledge qua knowledge of actors, must indeed correspond to the nature of things. The realistic character of such knowledge would manifest itself not only in the fact that one could not think it to be otherwise, but in the fact that one could not undo its truth.

Yet there are more specific implications involved in recognizing the praxeological foundations of epistemology—apart from the general one that in substituting the model of the mind of an actor acting by means of a physical body for the traditional rationalist model of an active mind a priori knowledge immediately becomes realistic knowledge (so realistic indeed that it can be understood as being literally not undoable). More specifically, in light of this insight decisive support is given to those deplorably few rationalist philosophers who—against the empiricist Zeitgeist—stubbornly maintain on various philosophical fronts that a priori true propositions about the real world are possible.57 Moreover, in light of the recognition of praxeological constraints on the structure of knowledge these various rationalist endeavors become systematically integrated into one, unified body of rationalist philosophy.

In explicitly understanding knowledge as displayed in argumentation as a peculiar category of action, it becomes clear immediately why the perennial rationalist claim that the laws of logic—beginning here with the most fundamental ones, i.e., of propositional logic and of Junctors (“and,” “or,” “if-then,” “not”) and Quantors (“there is,” “all,” “some”)—are a priori true propositions about reality and not mere verbal stipulations regarding the transformation rules of arbitrarily chosen signs, as empiricist-formalists would have it, is indeed correct. They are as much laws of thinking as of reality, because they are laws that have their ultimate foundation in action and could not be undone by any actor. In each and every action, an actor identifies some specific situation and categorizes it one way rather than another in order to be able to make a choice. It is this which ultimately explains the structure of even the most elementary propositions (like “Socrates is a man”) consisting of a proper name or some identifying expression for the naming or identifying of something, and a predicate to assert or deny some specific property of the named or identified object; and which explains the cornerstones of logic: the laws of identity and contradiction. And it is this universal feature of action and choosing which also explains our understanding of the categories “there is,” “all” and, by implication, “some,” as well as “and,” “or,” “if-then” and “not.”58 One can say, of course, that something can be “a” and “non-a” at the same time, or that “and” means this rather than something else. But one cannot undo the law of contradiction; and one cannot undo the real definition of “and.” For simply by virtue of acting with a physical body in physical space we invariably affirm the law of contradiction and invariably display our true constructive knowledge of the meaning of “and” and “or.”

Similarly, the ultimate reason for arithmetic’s being an a priori and yet empirical discipline, as rationalists have always understood it, now also becomes discernible. The prevailing empiricist-formalist orthodoxy conceives of arithmetic as the manipulation of arbitrarily defined signs according to arbitrarily stipulated transformation rules, and thus as entirely void of any empirical meaning. For this view, which evidently makes arithmetic nothing but play, however skillful it might be, the successful applicability of arithmetic in physics is an intellectual embarrassment. Indeed, empiricist-formalists would have to explain away this fact as simply being a miraculous event. That it is no miracle, however, becomes apparent once the praxeological or—to use here the terminology of the most notable rationalist philosopher-mathematician Paul Lorenzen and his school—the operative or constructivist character of arithmetic is understood. Arithmetic and its character as an a priori-synthetic intellectual discipline is rooted in our understanding of repetition, the repetition of action. More precisely, it rests on our understanding the meaning of “do this—and do this again, starting from the present result.” And arithmetic then deals with real things: with constructed or constructively identified units of something. It demonstrates what relations are to hold between such units because of the fact that they are constructed according to the rule of repetition. As Paul Lorenzen has demonstrated in detail, not all of what presently poses as mathematics can be constructively founded—and those parts, then, should of course be recognized for what they are: epistemologically worthless symbolic games. But all of the mathematical tools that are actually employed in physics, i.e., the tools of classical analysis, can be constructively derived. They are not empirically void symbolisms, but true propositions about reality. They apply to everything insofar as it consists of one or more distinct units, and insofar as these units are constructed or identified as units by a procedure of “do it again, construct or identify another unit by repeating the previous operation.”59 Again, one can say, of course, that 2 plus 2 is sometimes 4 but sometimes 2 or 5 units, and in observational reality, for lions plus lambs or for rabbits, this may even be true,60 but in the reality of action, in identifying or constructing those units in repetitive operations, the truth that 2 plus 2 is never anything but 4 could not possibly be undone.

Further, the old rationalist claims that geometry, that is, Euclidean geometry is a priori and yet incorporates empirical knowledge about space becomes supported, too, in view of our insight into the praxeological constraints on knowledge. Since the discovery of non-Euclidean geometries and in particular since Einstein’s relativistic theory of gravitation, the prevailing position regarding geometry is once again empiricist and formalist. It conceives of geometry as either being part of empirical, aposteriori physics, or as being empirically meaningless formalisms. Yet that geometry is either mere play, or forever subject to empirical testing seems to be irreconcilable with the fact that Euclidean geometry is the foundation of engineering and construction, and that nobody there ever thinks of such propositions as only hypothetically true.61 Recognizing knowledge as praxeologically constrained explains why the empiricist-formalist view is incorrect and why the empirical success of Euclidean geometry is no mere accident. Spatial knowledge is also included in the meaning of action. Action is the employment of a physical body in space. Without acting there could be no knowledge of spatial relations, and no measurement. Measuring is relating something to a standard. Without standards, there is no measurement; and there is no measurement, then, which could ever falsify the standard. Evidently, the ultimate standard must be provided by the norms underlying the construction of bodily movements in space and the construction of measurement instruments by means of one’s body and in accordance with the principles of spatial constructions embodied in it. Euclidean geometry, as again Paul Lorenzen in particular has explained, is no more and no less than the reconstruction of the ideal norms underlying our construction of such homogeneous basic forms as points, lines, planes and distances, which are in a more or less perfect but always perfectible way incorporated or realized in even our most primitive instruments of spatial measurements such as a measuring rod. Naturally, these norms and normative implications cannot be falsified by the result of any empirical measurement. On the contrary, their cognitive validity is substantiated by the fact that it is they which make physical measurements in space possible. Any actual measurement must already presuppose the validity of the norms leading to the construction of one’s measurement standards. It is in this sense that geometry is an a priori science; and that it must simultaneously be regarded as an empirically meaningful discipline, because it is not only the very precondition for any empirical spatial description, it is also the precondition for any active orientation in space.62

In view of the recognition of the praxeological character of knowledge, these insights regarding the nature of logic, arithmetic and geometry become integrated and embedded into a system of epistemological dualism.63 The ultimate justification for this dualist position, i.e., the claim that there are two realms of intellectual inquiry that can be understood a priori as requiring categorically distinct methods of treatment and analysis, also lies in the praxeological nature of knowledge. It explains why we must differentiate between a realm of objects which is categorized causally and a realm that is categorized teleologically instead.

I have already briefly indicated during my discussion of praxeology that causality is a category of action. The idea of causality that there are constant, time-invariantly operating causes which allow one to project past observations regarding the relation of events into the future is something (as empiricism since Hume has noticed) which has no observational basis whatsoever. One cannot observe the connecting link between observations. Even if one could, such an observation would not prove it to be a time-invariant connection. Instead, the principle of causality must be understood as implied in our understanding of action as an interference with the observational world, made with the intent of diverting the “natural” course of events in order to produce a different, prefered state of affairs, i.e., of making things happen that otherwise would not happen, and thus presupposes the notion of events which are related to each other through time-invariantly operating causes. An actor might err with respect to his particular assumptions about which earlier interference produced which later result. But successful or not, any action, changed or unchanged in light of its previous success or failure, presupposes that there are constantly connected events as such, even if no particular cause for any particular event can ever be preknown to any actor. Without such an assumption it would be impossible to ever categorize two or more observational experiences as falsifying or confirming each other rather than interpreting them as logically incommensurable events. Only because the existence of time-invariantly operating causes as such is already assumed can one ever encounter particular instances of confirming or disconfirming observational evidence, or can there ever be an actor who can learn anything from past experience by classifying his actions as successful and confirming some previous knowledge, or unsuccessful and disconfirming it. It is simply by virtue of acting and distinguishing between successes and failures that the a priori validity of the principle of causality is established; even if one tried, one could not successfully refute its validity.64

In so understanding causality as a necessary presupposition of action, it is also immediately implied that its range of applicability must then be delineated a priori from that of the category of teleology Indeed, both categories are strictly exclusive and complementary. Action presupposes a causally structured observational reality, but the reality of action which we can understand as requiring such structure, is not itself causally structured. Instead, it is a reality that must be categorized teleologically, as purpose-directed, meaningful behavior. In fact, one can neither deny nor undo the view that there are two categorically different realms of phenomena, since such attempts would have to presuppose causally related events qua actions that take place within observational reality, as well as the existence of intentionally rather than causally related phenomena in order to interpret such observational events as meaning to deny something. Neither a causal, nor a teleological monism could be justified without running into an open contradiction: physically stating either position, and claiming to say something meaningful in so doing, the case is in fact made for an indisputable complementarity of both, a realm of causal and teleological phenomena.65

Everything which is not an action must necessarily be categorized causally. There is nothing to be known a priori about this range of phenomena except that it is structured causally—and that it is structured according to the categories of propositional logic, arithmetic and geometry.66 Everything else there is to know about this range of phenomena must be derived from contingent observations and thus represents aposteriori knowledge. In particular, all knowledge about two or more specific observational events being causally related or not is aposteriori knowledge. Obviously, the range of phenomena described in this way coincides (more or less) with what is usually considered to be the field of the empirical natural sciences.

In contrast, everything that is an action must be categorized teleologically This realm of phenomena is constrained by the laws of logic and arithmetic, too. But it is not constrained by the laws of geometry as incorporated in our instruments of measuring spatially extending objects, because actions do not exist apart from subjective interpretations of observable things; and so they must be identified by reflective understanding rather than spatial measurements. Nor are actions causally connected events, but events that are connected meaningfully within a categorical framework of means and ends.

One can not know a priori what the specific values, choices and costs of some actor are or will be. This would fall entirely into the province of empirical, aposteriori knowledge. In fact, which particular action an actor is going to undertake would depend on his knowledge regarding the observational reality and/or the reality of other actors’ actions. And it would be manifestly impossible to conceive of such states of knowledge as predictable on the basis of time-invariantly operating causes. A knowing actor cannot predict his future knowledge before he has actually acquired it, and he demonstrates, simply by virtue of distinguishing between successful and unsuccessful predictions, that he must conceive of himself as capable of learning from unknown experiences in as yet unknown ways. Thus, knowledge regarding the particular course of actions is only aposteriori. And since such knowledge would have to include the actor’s own knowledge—as a necessary ingredient of every action whose every change can have an influence on a particular action being chosen—teleological knowledge must also necessarily be reconstructive, or historical knowledge. It would only provide ex-post explanations which would have no systematic bearing on the prediction of future actions, because, in principle, future states of knowledge could never be predicted on the basis of constantly operating empirical causes. Obviously, such a delineation of a branch of aposteriori and reconstructive science of action fits the usual description of such disciplines as history and sociology.67

What is known to be true a priori regarding the field of action, and what would then have to constrain any historical or sociological explanation is this: For one thing, any such explanation, which essentially would have to reconstruct an actor’s knowledge, would invariably have to be a reconstruction in terms of knowledge of ends and means, of choices and costs, of profits and losses and so on. And secondly, since these are evidently the categories of praxeology as conceived of by Mises, any such explanation must also be constrained by the laws of praxeology. And since these laws are, as I have already explained, a priori laws, they must also operate as logical constraints on any future course of action. They are valid independent of any specific state of knowledge that an actor might have acquired, simply by virtue of the fact that whatever this state might be, it must be described in terms of action categories. And as referring to actions as such, the laws of praxeology must then be coextensive with all the predictive knowledge there can be in the field of the science of action. In fact, ignoring for the moment that the status of geometry as an a priori science was ultimately grounded in our understanding of action and in so far praxeology would have to be regarded as the more fundamental cognitive discipline, the peculiar role of praxeology proper within the entire system of epistemology can be understood as somewhat analogous to that of geometry Praxeology is for the field of action what Euclidean geometry is for the field of observations (non-actions). As the geometry incorporated in our measuring instruments constrains the spatial structure of observational reality, so praxeology constrains the range of things that can possibly be experienced in the field of actions.

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ON PRAXEOLOGY AND THE PRAXEOLOGICAL FOUNDATION OF EPISTEMOLOGY

Hans-Hermann Hoppe

As have most great and innovative economists, Ludwig von Mises intensively and repeatedly analyzed the problem of the logical status of economic propositions, i.e., how we come to know them and how we validate them. Indeed, Mises ranks foremost among those who hold that such a concern is indispensable in order to achieve systematic progress in economics. For any misconception regarding the answer to such fundamental questions of one’s intellectual enterprise would naturally have to lead to intellectual disaster, i.e., to false economic doctrines. Accordingly three of Mises’s books are devoted entirely to clarifying the logical foundations of economics: His early Epistemological Problems of Economics, published in German in 1933; his Theory and History of 1957; and his Ultimate Foundations of Economic Science of 1962, Mises’s last book, appearing when he was already well past his eightieth birthday. And his works in the field of economics proper also invariably display the importance which Mises attached to the analysis of epistemological problems. Most characteristically, Human Action, his masterpiece, deals in its first hundred-odd pages exclusively with such problems, and the other nearly 800 pages of the book are permeated with epistemological considerations.

Quite in line with the tradition of Mises, then, the foundations of economics are also the subject of this chapter. I have set myself a twofold goal. First, I want to explain the solution which Mises advances regarding the problem of the ultimate foundation of economic science, i.e., his idea of a pure theory of action, or praxeology, as he himself terms it. And secondly, I want to demonstrate why Mises’s solution is much more than just an incontestable insight into the nature of economics and economic propositions.

It provides an insight that also enables us to understand the foundation on which epistemology ultimately rests. In fact, as the title of the chapter suggests, I want to show that it is praxeology which must be regarded as the very foundation of epistemology, and hence that Mises, aside from his great achievements as an economist, also contributed path-breaking insights regarding the justification of the entire enterprise of rationalist philosophy.40

II

Let me turn to Mises’s solution. What is the logical status of typical economic propositions such as the law of marginal utility (that whenever the supply of a good whose units are regarded as of equal serviceability by a person increases by one additional unit, the value attached to this unit must decrease as it can only be employed as a means for the attainment of a goal that is considered less valuable than the least valuable goal previously satisfied by a unit of this good); or of the quantity theory of money (that whenever the quantity of money is increased while the demand for money to be held in cash reserve on hand is unchanged, the purchasing power of money will fall)?

In formulating his answer, Mises faced a double challenge. On the one hand, there was the answer offered by modern empiricism. The Vienna Ludwig von Mises knew was in fact one of the early centers of the empiricist movement: a movement which was then on the verge of establishing itself as the dominant academic philosophy of the Western world for several decades, and which to this very day shapes the image that an overwhelming majority of economists have of their own discipline.41

Empiricism considers nature and the natural sciences as its model. According to empiricism, the aforementioned examples of economic propositions have the same logical status as laws of nature: Like laws of nature they state hypothetical relationships between two or more events, essentially in the form of if-then statements. And like hypotheses of the natural sciences, the propositions of economics require continual testing vis-à-vis experience. A proposition regarding the relationship between economic events can never be validated once and for all with certainty. Instead, it is forever subject to the outcome of contingent, future experiences. Such experience might confirm the hypothesis. But this would not prove the hypothesis to be true, since the economic proposition would have used general terms (in philosophical terminology: universals) in its description of the related events, and thus would apply to an indefinite number of cases or instances, thereby always leaving room for possibly falsifying future experiences. All a confirmation would prove is that the hypothesis had not yet turned out wrong. On the other hand, the experience might falsify the hypothesis. This would surely prove that something was wrong with the hypothesis as it stood. But it would not prove that the hypothesized relationship between the specified events could never be observed. It would merely show that considering and controlling in one’s observations only what up to now had been actually accounted for and controlled, the relationship had not yet shown up. It cannot be ruled out, however, that it might show up as soon as some other circumstances have been controlled.

The attitude that this philosophy fuels and that has indeed become characteristic of most contemporary economists and their way of conducting their business is one of skepticism: the motto being “nothing can be known with certainty to be impossible in the realm of economic phenomena.” Even more precisely, since empiricism conceives of economic phenomena as objective data, extending in space and subject to quantifiable measurement—in strict analogy to the phenomena of the natural sciences—the peculiar skepticism of the empiricist economist may be described as that of a social engineer who will not guarantee anything.42

The other challenge came from the side of the historicist school. Indeed, during Mises’s life in Austria and Switzerland, the historicist philosophy was the prevailing ideology of the German-speaking universities and their establishment. With the upsurge of empiricism this former prominence has been reduced considerably. But over roughly the last decade historicism has regained momentum among the Western world’s academia. Today it is with us everywhere under the names of hermeneutics, rhetoric, deconstructionism, and epistemological anarchism.43

For historicism, and most conspicuously for its contemporary versions, the model is not nature but a literary text. Economic phenomena, according to the historicist doctrine, are not objective magnitudes that can be measured. Instead, they are subjective expressions and interpretations unfolding in history to be understood and interpreted by the economist just as a literary text unfolds before and is interpreted by its reader. As subjective creations, the sequence of their events follows no objective law. Nothing in the literary text, and nothing in the sequence of historical expressions and interpretations is governed by constant relations. Of course, certain literary texts actually exist, and so do certain sequences of historical events. But this by no means implies that anything had to happen in the order it did. It simply occurred. In the same way, however, as one can always invent different literary stories, history and the sequence of historical events, too, might have happened in an entirely different way. Moreover, according to historicism, and particularly visible in its modern hermeneutical version, the formation of these always contingently related human expressions and their interpretations is also not constrained by any objective law. In literary production anything can be expressed or interpreted concerning everything; and, along the same line, historical and economic events are whatever someone expresses or interprets them to be, and their description by the historian and economist is then whatever he expresses or interprets these past subjective events to have been.

The attitude that historicist philosophy generates is one of relativism. Its motto is “everything is possible.” Unconstrained by any objective law, for the historicist-hermeneutician history and economics, along with literary criticism, are matters of esthetics. And accordingly, his output takes on the form of disquisitions on what someone feels about what he feels was felt by somebody else—a literary form which we are only too familiar with, in particular in such fields as sociology and political science.44

I trust that one senses intuitively that something is seriously amiss in both the empiricist as well as the historicist philosophies. Their epistemological accounts do not even seem to fit their own self-chosen models: nature on the one hand and literary texts on the other. And in any case, regarding economic propositions such as the law of marginal utility or the quantity theory of money their accounts seem to be simply wrong. The law of marginal utility certainly does not strike one as a hypothetical law subject forever for its validation to confirming or disconfirming experiences popping up here or there. And to conceive of the phenomena talked about in the law as quantifiable magnitudes seems to be nothing but ridiculous. Nor does the historicist interpretation seem to be any better. To think that the relationship between the events referred to in the quantity theory of money can be undone if one only wished to do so seems absurd. And the idea appears no less absurd that concepts such as money, demand for money, and purchasing power are formed without any objective constraints and refer merely to whimsical subjective creations. Instead, contrary to the empiricist doctrine, both examples of economic propositions appear to be logically true and to refer to events which are subjective in nature. And contrary to historicism, it would seem that what they state, then, could not possibly be undone in all of history and would contain conceptual distinctions which, while referring to subjective events, were nonetheless objectively constrained, and would incorporate universally valid knowledge.

Like most of the better known economists before him, Mises shares these intuitions.45 Yet in quest of the foundation of economics, Mises goes beyond intuition. He takes on the challenge posed by empiricism and historicism in order to reconstruct systematically the basis on which these intuitions can be understood as correct and justified. He thereby does not want to help bring about a new discipline of economics. But in explaining what formerly had only been grasped intuitively, Mises goes far beyond what had ever been done before. In reconstructing the rational foundations of the economists’ intuitions, he assures us of the proper path for any future development in economics and safeguards us against systematic intellectual error.

Empiricism and historicism, Mises notes at the outset of his reconstruction, are self-contradictory doctrines.46 The empiricist notion that all events, natural or economic, are only hypothetically related is contradicted by the message of this very basic empiricist proposition itself: For if this proposition were regarded as itself being merely hypothetically true, i.e., a hypothetically true proposition regarding hypothetically true propositions, it would not even qualify as an epistemological pronouncement. For it would then provide no justification whatsoever for the claim that economic propositions are not, and cannot be, categorically, or a priori true, as our intuition informs us they are. If, however, the basic empiricist premise were assumed to be categorically true itself, i.e., if we assume that one could say something a priori true about the way events are related, then this would belie its very own thesis that empirical knowledge must invariably be hypothetical knowledge, thus making room for a discipline such as economics claiming to produce a priori valid empirical knowledge. Further, the empiricist thesis that economic phenomena must be conceived of as observable and measurable magnitudes—analogous to those of the natural sciences—is rendered inconclusive, too, on its own account: For, obviously, empiricism wants to provide us with meaningful empirical knowledge when it informs us that our economic concepts are grounded in observations. And yet, the concepts of observation and measurement themselves, which empiricism must employ in claiming what it does, are both obviously not derived from observational experience in the sense that concepts such as hens and eggs or apples and pears are. One cannot observe someone making an observation or measurement. Rather, one must first understand what observations and measurements are in order to then be able to interpret certain observable phenomena as the making of an observation or the taking of a measurement. Thus, contrary to its own doctrine, empiricism is compelled to admit that there is empirical knowledge which is based on understanding—just as according to our intuitions economic propositions claim to be based on understanding—rather than on observations.47

And regarding historicism, its self-contradictions are no less manifest. For if, as historicism claims, historical and economic events—which it conceives of as sequences of subjectively understood rather than observed events—are not governed by any constant, time-invariant relations, then this very proposition also cannot claim to say anything constantly true about history and economics. Instead, it would be a proposition with, so to speak, a fleeting truth value: it may be true now, if we wish it so, yet possibly false a moment later, in case we do not, with no one ever knowing anything about whether we do or do not. Yet, if this were the status of the basic historicist premise, it, too, would obviously not qualify as an epistemology. Historicism would not have given us any reason why we should believe any of it. If, however, the basic proposition of historicism were assumed to be invariantly true, then such a proposition about the constant nature of historical and economic phenomena would contradict its own doctrine denying any such constants. Furthermore, the historicist’s—and even more so its modern heir, the hermeneutician’s—claim that historical and economic events are mere subjective creations, unconstrained by any objective factors, is proven false by the very statement making it. For evidently, a historicist must assume this very statement to be meaningful and true; he must presume to say something specific about something, rather than merely uttering meaningless sounds like abracadabra. Yet if this is the case, then, clearly, his statement must be assumed to be constrained by something outside the realm of arbitrary subjective creations. Of course, I can say what the historicist says in English, German, or Chinese, or in any other language I wish, in so far as historic and economic expressions and interpretations may well be regarded as mere subjective creations. But whatever I say in whatever language I choose must be assumed to be constrained by some underlying propositional meaning of my statement, which is the same for any language, and exists completely independent of whatever the peculiar linguistic form may be in which it is expressed. And contrary to historicist belief, the existence of such a constraint is not such that one could possibly dispose of it at will. Rather, it is objective in that we can understand it to be the logically necessary presupposition for saying anything meaningful at all, as opposed to merely producing meaningless sounds. The historicist could not claim to say anything if it were not for the fact that his expressions and interpretations are actually constrained by laws of logic as the very presupposition of meaningful statements as such.48

With such a refutation of empiricism and historicism, Mises notices, the claims of rationalist philosophy are successfully reestablished, and the case is made for the possibility of a priori true statements, as those of economics seem to be. Indeed, Mises explicitly regards his own epistemological investigations as the continuation of the work of western rationalist philosophy. With Leibniz and Kant he stands opposite the tradition of Locke and Hume.49 He sides with Leibniz when he answers Locke’s famous dictum “nothing is in the intellect that has not previously been in the senses” with his equally famous one “except the intellect itself.” And he recognizes his task as a philosopher of economics as strictly analogous to that of Kant’s as a philosopher of pure reason, i.e., of epistemology. Like Kant, Mises wants to demonstrate the existence of true a priori synthetic propositions, or propositions whose truth values can be definitely established, even though in order to do so the means of formal logic are insufficient and observations are unnecessary.

My criticism of empiricism and historicism has proved the general rationalist claim. It has proved that we indeed do possess knowledge which is not derived from observation and yet is constrained by objective laws. In fact, our refutation of empiricism and historicism contains such a priori synthetic knowledge. Yet what about the constructive task of showing that the propositions of economics—such as the law of marginal utility and the quantity theory of money—qualify as this type of knowledge? In order to do so, Mises notices in accordance with the strictures traditionally formulated by rationalist philosophers, economic propositions must fulfill two requirements: First, it must be possible to demonstrate that they are not derived from observational evidence, for observational evidence can only reveal things as they happen to be; there is nothing in it that would indicate why things must be the way they are. Instead, economic propositions must be shown to be grounded in reflective cognition, in our understanding of ourselves as knowing subjects. And secondly this reflective understanding must yield certain propositions as self-evident material axioms. Not in the sense that such axioms would have to be self-evident in a psychological sense, that is, that one would have to be immediately aware of them or that their truth depends on a psychological feeling of conviction. On the contrary, like Kant before him, Mises very much stresses the fact that it is usually much more painstaking to discover such axioms than it is to discover some observational truth such as that the leaves of trees are green or that I am 6 foot 2 inches.50 Rather, what makes them self-evident material axioms is the fact that no one can deny their validity without self-contradiction, because in attempting to deny them one already presupposes their validity.

Mises points out that both requirements are fulfilled by what he terms the axiom of action, i.e., the proposition that humans act, that they display intentional behavior.51 Obviously, this axiom is not derived from observation—there are only bodily movements to be observed but no such thing as actions—but stems instead from reflective understanding. And this understanding is indeed of a self-evident proposition. For its truth cannot be denied, since the denial would itself have to be categorized as an action. But is this not just plain trivial? And what has economics got to do with this? Of course, it had previously been recognized that economic concepts such as prices, costs, production, money, credit, etc., had something to do with the fact that there were acting people. But that all of economics could be grounded in and reconstructed based on such a trivial proposition and how, is certainly anything but clear. It is one of Mises’s greatest achievements to have shown precisely this: that there are insights implied in this psychologically speaking trivial axiom of action that were not themselves psychologically self-evident as well; and that it is these insights which provide the foundation for the theorems of economics as true a priori synthetic propositions.

It is certainly not psychologically evident that with every action an actor pursues a goal; and that whatever the goal may be, the fact that it was pursued by an actor reveals that he must have placed a relatively higher value on it than on any other goal of action that he could think of at the start of his action. It is not evident that in order to achieve his most highly valued goal an actor must interfere or decide not to interfere—which, of course, is also an intentional interference—at an earlier point in time in order to produce a later result; nor is it obvious 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 action. It is not self-evident that these means, then, 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 a choice, i.e., taking up that one course of action which at some given time promises the most highly valued results to the actor and excluding at the same time the pursual of other, less highly valued goals. It is not automatically clear 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, i.e., forsaking the value attached to the most highly ranking alternative goal that cannot be realized or whose realization must be deferred, because the means necessary to attain it are bound up in the production of another, even more highly valued goal. And lastly, it is not evident 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 opportunity, and yet that every action is also invariably threatened by the possibility of a loss if an actor finds, in retrospect, that contrary to his expectations the actually achieved result in fact has a lower value than the relinquished alternative would have had.

All of these categories which we know to be the very heart of economics—values, ends, means, choice, preference, cost, profit and loss—are implied in the axiom of action. Like the axiom itself, they are not derived from observation. Rather, that one is able to interpret observations in terms of such categories requires that one already knows what it means to act. No one who is not an actor could ever understand them, as they are not “given,” ready to be observed, but observational experience is cast in these terms as it is construed by an actor. And while they and their interrelations were not obviously implied in the action axiom, once it has been made explicit that they are implied, and how, one no longer has any difficulty recognizing them as being a priori true in the same sense as the axiom itself is. For any attempt to disprove the validity of what Mises has reconstructed as implied in the very concept of action would have to be 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. Thus, it is manifestly impossible to ever dispute or falsify the validity of Mises’s insights. In fact, a situation in which the categories of action would cease to have a real existence could itself never be observed or spoken of, since to make an observation and to speak are themselves actions.

All true economic propositions, and this is what praxeology is all about and what Mises’s great insight consists of, can be deduced by means of formal logic from this incontestably true material knowledge regarding the meaning of action and its categories. More precisely all true economic theorems consist of (a) an understanding of the meaning of action, (b) a situation or situational change—assumed to be given or identified as being given—and described in terms of action-categories, and (c) a logical deduction of the consequences—again in terms of such categories—which are to result for an actor from this situation or situational change. The law of marginal utility, for instance,52 follows from our indisputable knowledge of the fact that every actor always prefers what satisfies him more over what satisfies him less, plus the assumption that he is faced with an increase in the supply of a good (a scarce mean) whose units he regards as of equal serviceability, by one additional unit. From this it follows with logical necessity that this additional unit can then only be employed as a means for the removal of an uneasiness that is deemed less urgent than the least valuable goal previously satisfied by a unit of such a good. Provided there is no flaw in the process of deduction, the conclusions which economic theorizing yields, no different in the case of any other economic proposition from the case of the law of marginal utility, must be valid a priori. These propositions’ validity ultimately goes back to nothing but the indisputable axiom of action. To think, as empiricism does, that these propositions require continual empirical testing for their validation is absurd, and a sign of outright intellectual confusion. And it is no less absurd and confused to believe, as historicism does, that economics has nothing to say about constant and invariable relations but merely deals with historically accidental events. To say so meaningfully is to prove such a statement wrong, as saying anything meaningful at all already presupposes acting and a knowledge of the meaning of the categories of action. 

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PRAXEOLOGY AND ECONOMIC SCIENCE II

Hans-Hermann Hoppe

Non-praxeological schools of thought mistakenly believe that relationships between certain events are well-established empirical laws when they are really necessary and logical praxeological ones. And they thereby behave as if the statement “a ball cannot be red and non-red all over at the same time” requires testing in Europe, America, Africa, Asia and Australia (of course requiring a lot of funds in order to pay for such daring nonsensical research). Moreover, the non-praxeologists also believe that relationships between certain events are well-established empirical laws (with predictive implications) when a priori reasoning can show them to be no more than information regarding contingent historical connections between events, which does not provide us with any knowledge whatsoever regarding the future course of events.

This illustrates another fundamental confusion non-Austrian schools have: a confusion over the categorical difference between theory and history and the implication that this difference has for the problem of social and economic forecasting.

I must again begin with a description of empiricism, the philosophy which thinks of economics and the social sciences in general as following the same logic of research as that, for instance, of physics. I will explain why. According to empiricism—today’s most widely held view of economics—there is no categorical difference between theoretical and historical research. And I will explain what this implies for the idea of social forecasting. The very different Austrian view will then be developed out of a critique and refutation of the empiricist position.

Empiricism is characterized by the fact that it accepts two intimately related basic propositions.20 The first and most central one is: Knowledge regarding reality, which is called empirical knowledge, must be verifiable or at least falsifiable by observational experience. Observational experience can only lead to contingent knowledge (as opposed to necessary knowledge), because it is always of such a kind that, in principle, it could have been different than it actually was. This means that no one can know in advance of experience—that is before actually having had some particular observational experience—if the consequence of some real event will be one way or another. If, on the other hand, knowledge is not verifiable or falsifiable by observational experience, then it is not knowledge about anything real. It is simply knowledge about words, about the use of terms, about signs and transformational rules for signs. That is to say, it is analytical knowledge, but not empirical knowledge. And it is highly doubtful, according to this view, that analytical knowledge should be regarded as knowledge at all.

The second assumption of empiricism formulates the extension and application of the first assumption to problems of causality, causal explanation, and prediction. According to empiricism, to explain causally or predict a real phenomenon is to formulate a statement of either the type “if A, then B” or, should the variables allow quantitative measurement, “if an increase (decrease) in A, then an increase (decrease) in B.”

As a statement referring to reality (with A and B being real phenomena), its validity can never be established with certainty, that is, by examining the proposition alone, or of any other proposition from which the one in question could be logically deduced. The statement will always be and always remain hypothetical, its veracity depending on the outcome of future observational experiences which cannot be known in advance. Should experience confirm a hypothetical causal explanation, this would not prove that the hypothesis was true. Should one observe an instance where B indeed followed A as predicted, it verifies nothing. A and B are general, abstract terms, or in philosophical terminology, universals, which refer to events and processes of which there are (or might be, in principle) an indefinite number of instances. Later experiences could still possibly falsify it.

And if an experience falsified a hypothesis, this would not be decisive either. For if it was observed that A was not followed by B, it would still be possible that the hypothetically related phenomena were causally linked. It could be that some other circumstance or variable, heretofore neglected and uncontrolled, had simply prevented the hypothesized relationship from actually being observed. At the most, falsification only proves that the particular hypothesis under investigation was not completely correct as it stood. It needs some refinement, some specification of additional variables which have to be watched for and controlled so that we might observe the hypothesized relationship between A and B. But, to be sure, a falsification would never prove once and for all that a relationship between some given phenomena did not exist, just as a confirmation would never definitively prove that it did exist.21

When we consider this position, we notice that it again implies a denial of a priori knowledge that is at the same time knowledge about anything real. Any proposition that claims to be a priori can, according to empiricism, be no more than signs on paper that are related to each other by definition or by arbitrary stipulation, and is thus completely void: it is without connection to the world of real things whatsoever. Such a system of signs only becomes an empirically meaningful theory once an empirical interpretation is given to its symbols. Yet as soon as such an interpretation is given to its symbols, the theory is no longer a priori true but rather becomes and remains forever hypothetical.

Moreover, according to empiricism, we cannot know with certainty whether something is a possible cause of something else. If we want to explain some phenomenon, our hypothesizing about possible causes is in no way constrained by a priori considerations. Everything can have some influence on anything. We must find out by experience whether it does or not; but then experience will never give us a definite answer to this question either.

The next point brings us to our central topic of this section: the relationship between history and theory. We notice that according to empiricism there is no principal difference between historical and theoretical explanations. Every explanation is of the same type. In order to explain a phenomenon we hypothesize some other phenomenon as its cause and then see whether or not the hypothesized cause indeed preceded the effect in time. A distinction exists between a historical and a theoretical explanation only insofar as a historical explanation refers to events that already happened, something that lies in the past, whereas a theoretical explanation would be an explanation, or rather a prediction, of an effect that has not yet occurred. Structurally, though, there is no difference between such historical explanations and theoretical predictions. There is, however, a pragmatic difference which explains why empiricists in particular stress the importance of a theory’s predictive power and are not content with testing it only vis-à-vis historical data.22 The reason for this is quite evident to anyone who was ever engaged in the foolish game of data analyses. If the phenomenon to be explained has already occurred, it is easy as cake to find all sorts of events that preceded it in time and could possibly be considered its cause. Moreover, if we don't want to lengthen our list of possible causes by finding more preceding variables, we can do the following (and in the age of computers, it’s even easier): We can take any one of the preceding variables and try out different functional relationships between it and the variable to be explained—linear or curvilinear ones, recursive or non-recursive functions, additive or multiplicative relations, etc. Then one, two, three, we find what we were looking for: a functional relationship that fits the data. And you will find not just one but any amount of them that you could possibly desire.

But which of all these preceding events, or of all the types of relationships, is the cause or the causally effective relation? There are no a priori considerations, according to empiricism, that could help us here. And that, then, is the reason why empiricists emphasize the importance of predictions. In order to find out which one of these manifold historical explanations is indeed correct—or at least not false—we are asked to try them out by using them in predicting events that have not yet occurred, see how good they are, and thereby weed out the wrong explanations.

So much for empiricism and its ideas about theory, history, and forecasting. I will not go into a detailed analysis of the question whether or not this emphasis on predictive success changes much, if anything at all, with respect to the rather evident relativistic implications of empiricism. Just recall that according to its very own doctrine, neither a predictive confirmation nor a predictive falsification would help us either in deciding whether a causal relationship between a pair of variables did or did not exist. This should make it appear rather doubtful that anything is gained by making prediction the cornerstone of one’s philosophy.

I would like to challenge the very starting point of the empiricists' philosophy. There are several conclusive refutations of empiricism. I will show the empiricist distinction between empirical and analytical knowledge to be plainly false and self-contradictory.23 That will then lead us to developing the Austrian position on theory, history, and forecasting.

This is empiricism’s central claim: Empirical knowledge must be verifiable or falsifiable by experience; and analytical knowledge, which is not so verifiable or falsifiable, thus cannot contain any empirical knowledge. If this is true, then it is fair to ask: What then is the status of this fundamental statement of empiricism? Evidently it must be either analytical or empirical.

Let us first assume it is analytical. According to the empiricist doctrine, however, an analytical proposition is nothing but scribbles on paper, hot air, entirely void of any meaningful content. It says nothing about anything real. And hence one would have to conclude that empiricism could not even say and mean what it seems to say and mean. Yet if, on the other hand, it says and means what we thought it did all along, then it does inform us about something real. As a matter of fact, it informs us about the fundamental structure of reality. It says that there is nothing in reality that can be known to be one way or another prior to future experiences which may confirm or disconfirm our hypothesis.

And if this meaningful proposition is taken to be analytical, that is, as a statement that does not allow any falsification and whose truth can be established by an analysis of its terms alone, one has no less than a glaring contradiction at hand. Empiricism itself would prove to be nothing but self-defeating nonsense.24

So perhaps we should choose the other available option and declare the fundamental empiricist distinction between empirical and analytical knowledge an empirical statement. But then the empiricist position would no longer carry any weight whatsoever. For if this were done, it would have to be admitted that the proposition—as an empirical one—might well be wrong and that one would be entitled to hear on the basis of what criterion one would have to decide whether or not it was. More decisively, as an empirical proposition, right or wrong, it could only state a historical fact, something like “all heretofore scrutinized propositions fall indeed into the two categories analytical and empirical.” The statement would be entirely irrelevant for determining whether it would be possible to produce propositions that are true a priori and are still empirical ones. Indeed, if empiricism’s central claim were declared an empirical proposition, empiricism would cease altogether to be an epistemology, a logic of science, and would be no more than a completely arbitrary verbal convention of calling certain arbitrary ways of dealing with certain statements certain arbitrary names. Empiricism would be a position void of any justification.

What does this first step in our criticism of empiricism prove? It proves evidently that the empiricist idea of knowledge is wrong, and it proves this by means of a meaningful a priori argument. And in doing this, it shows that the Kantian and Misesian idea of true a priori synthetic propositions is correct. More specifically, it proves that the relationship between theory and history cannot be as depicted by empiricism. There must also be a realm of theory—theory that is empirically meaningful—which is categorically different from the only idea of theory empiricism admits to having existence. There must also be a priori theories, and the relationship between theory and history then must be different and more complicated than empiricism would have us believe. How different indeed will become apparent when I present another argument against empiricism, another a priori argument, and an a priori argument against the thesis implied in empiricism that the relation between theory and empirical research is the same in every field of knowledge.

However appropriate the empiricist ideas may be in dealing with the natural sciences (and I think they are inappropriate even there, but I cannot go into this here),25 it is impossible to think that the methods of empiricism can be applicable in the social sciences.

Actions are the field of phenomena which constitutes what we regard as the subject matter of the social sciences. Empiricism claims that actions can and must be explained, just as any other phenomenon, by means of causal hypotheses which can be confirmed or falsified by experience.26

Now if this were the case, then empiricism would be first forced to assume—contrary to its own doctrine that no a priori knowledge about anything real exists—that time-in-variantly operating causes with respect to actions exist.

One would not know a priori which particular event might be the cause of any particular action. But empiricism wants us to relate different experiences regarding sequences of events as either confirming or falsifying each other. And if they falsify each other, then we are to respond with a reformulation of the original hypothesis. Yet in order to do so, we must assume a constancy over time in the operation of causes as such—and to know that causes for actions do exist is, of course, knowledge about the reality of actions. Without such an assumption regarding the existence of causes as such, different experiences can never be related to each other as confirming or falsifying one another. They are simply unrelated, incommensurable observations. Here is one, there is another; they are the same or similar; or they are different. Nothing else follows.27

In addition, there is yet another contradiction, and making it evident will immediately lead us to Mises’s central insight that the relationship between theory and history in the field of the social sciences is of an entirely different nature than that in the natural sciences.

What is this contradiction? If actions could indeed be conceived of as governed by time-invariantly operating causes, then it is certainly appropriate to ask: But what then about explaining the explainers? What about causally predicting their actions? They are, after all, the persons who carry on the very process of creating hypotheses and of verification and falsification.

In order to assimilate confirming or falsifying experiences—to replace old hypotheses with new ones—one must assumedly be able to learn from experience. Every empiricist is, of course, forced to admit this. Otherwise why engage in empirical research at all?

But if one can learn from experience in as yet unknown ways, then one admittedly cannot know at any given time what one will know at a later time and, accordingly, how one will act on the basis of this knowledge. One can only reconstruct the causes of one’s actions after the event, as one can explain one’s knowledge only after one already possesses it. Indeed, no scientific advance could ever alter the fact that one must regard one’s knowledge and actions as unpredictable on the basis of constantly operating causes. One might hold this conception of freedom to be an illusion. And one might well be correct from the point of view of a scientist with cognitive powers substantially superior to any human intelligence, or from the point of view of God. But we are not God, and even if our freedom is illusory from His standpoint and our actions follow a predictable path, for us this is a necessary and unavoidable illusion. We cannot predict in advance, on the basis of our previous states, the future states of our knowledge or the actions manifesting that knowledge. We can only reconstruct them after the event.28

Thus, the empiricist methodology is simply contradictory when applied to the field of knowledge and action—which contains knowledge as its necessary ingredient. The empiricist-minded social scientists who formulate prediction equations regarding social phenomena are simply doing nonsense. Their activity of engaging in an enterprise whose outcome they must admit they do not yet know, proves that what they pretend to do cannot be done. As Mises puts it and has emphasized repeatedly: There are no empirical causal constants in the field of human action.29

By means of a priori reasoning then, one has established this insight: Social history, as opposed to natural history, does not yield any knowledge that can be employed for predictive purposes. Rather, social and economic history refers exclusively to the past. The outcome of research into how and why people acted in the past has no systematic bearing on whether or not they will act the same way in the future. People can learn. It is absurd to assume that one could predict in the present what one will know tomorrow and in what way tomorrow’s knowledge will or will not be different from today’s.

A person cannot predict today his demand for sugar in one year any more than Einstein could have predicted the theory of relativity before he had actually developed it. A person cannot know today what he will know about sugar one year from now. And he cannot know all the goods that will be competing against sugar for his money in a year. He can make a guess, of course. But since it must be admitted that future states of knowledge cannot be predicted on the basis of constantly operating causes, a person cannot pretend to make a prediction of the same epistemological type as, for instance, one regarding the future behavior of the moon, the weather, or the tides. Those are predictions that could legitimately make use of the assumption of time-in-variantly operating causes. But a prediction about future sugar demand would be an entirely different thing.

Provided social and economic history can only come up with reconstructive explanations and never with explanations that have any systematic predictive relevance, another extremely important insight regarding the logic of empirical social research follows. And this amounts to another decisive criticism of empiricism, at least regarding its claim of being an appropriate methodology for social science research.

Recall what I said earlier about why it is that empiricism so strongly emphasizes the predictive function of explanatory theories. For every phenomenon to be explained there are a multitude of preceding events and a multitude of functional relationships with such preceding events by which the phenomenon in question could possibly be explained. But which of these rival explanations is correct and which ones are not? The empiricist answer was: Try to predict, and your success or failure in predicting future events will tell you which explanation is or is not correct. Evidently, this advice won't do if there are no time-invariantly operating causes with respect to actions. What then? Empiricism, of course, cannot have an answer to this question.

Yet even if actions cannot be predicted in any scientific way, this does not imply that one reconstructive historical explanation is just as good as any other. It would be regarded as absurd if someone explained the fact that I moved from Germany to the United States by pointing out, for example, that the corn in Michigan, prior to my decision, was experiencing a growth spurt and that this had caused my decision. But why not, assuming here that the event regarding Michigan’s corn indeed happened prior to my decision? The reason is, of course, that I will tell you that Michigan’s corn had no relevance for my decision. And insofar as anything is known about me at all, it can be recognized that this is indeed the case.

But how can you recognize this? The answer is by understanding my motives and interests, my convictions and aspirations, my normative orientations, and my concrete perceptions resulting in this action. How do we understand somebody and, moreover, how do we verify that our understanding is indeed correct? As regards the first part of the question—one understands somebody by engaging in a pseudo-communication and interaction with him. I say pseudo because, evidently, we cannot engage in an actual communication with Caesar in order to find out why he crossed the Rubicon. But we could study his writings and compare his convictions expressed therein with his actual deeds; we could study the writings and actions of contemporaries and thereby try to understand Caesar’s personality, his time, and his particular role and position within his time.30

As regards the second part of the question—the problem of verification of historical explanations—one has to admit from the outset that there is no absolutely clear-cut criterion that would allow one to decide which one of two rival explanations, both equally based on understanding, is definitely correct and which one is not. History is not an exact science in the same sense as the natural sciences are exact sciences or in the very different sense in which economics is an exact science.

Even if two historians agree in their description of facts and their assessment of factors of influence for a given action to be explained, they might still disagree on the weight that should be assigned to such factors in bringing about the action. And there would be no way to decide the matter in a completely unambiguous way.31

Yet let me not be misunderstood here. There is nonetheless some sort of truth-criterion for historical explanations. It is a criterion that does not eliminate all possible disagreements among historians, but that still excludes and disqualifies a wide range of explanations. The criterion is that any true historical explanation must be of such a kind that the actor whose actions are to be explained must, in principle, be able to verify the explanation and the explanatory factors as being those that contributed to his acting the way he did.32 The key phrase here is: in principle. Naturally, Caesar could not possibly verify our explanation for his crossing the Rubicon. Moreover, he might actually have strong reasons not to verify the explanation even if he could, since such a verification might conflict with some other objectives that he might have.

Also, to say that any true explanation must be verifiable by the actor in question is not to say that every actor is always best qualified to be his own explainer. It may be that Einstein can explain better than anyone else why and how he came up with the theory of relativity when he did. But this might not be so. As a matter of fact, it may well be possible that a historian of science may understand Einstein and the influences leading to his discovery better than he himself did or could. And this would be possible because the influencing factors or the rules that determined one’s actions might only be subconscious.33 Or they might be so obvious that one would fail to notice them simply on account of this.

The following analogy may be quite helpful in understanding the curious fact that others might understand a person better than the person himself. Take, for example, a public speech. Of course, to a large extent the person giving the speech can probably give reasons for saying what he says and formulate the influences that led him to see things the way he does. He can probably do so better than anyone else. And yet, in saying what he says, he follows rules habitually and unconsciously that he could hardly or only with great difficulties make explicit. He also follows certain rules of grammar when he says what he says. But quite often he would be completely unable to formulate these rules even though they clearly influence his actions. The historian who understands someone’s actions better than the person himself is quite analogous to the grammarian analyzing the sentence structure of the public speaker. Both reconstruct and explicitly formulate the rules that are actually followed, but that could not, or only with extreme difficulties, be formulated by the speaker himself.34

The speaker may not be able to formulate all the rules that he follows and may need the professional historian or grammarian to help him. But it is of great importance to realize that the truth criterion for the grammarian’s explanation would nonetheless be that the speaker would have to be able—in principle—to verify the correctness of the explanation after what was previously known implicitly was made explicit. In order for the grammarian’s or historian’s explanations to be correct, the actor would need to be able to recognize these rules as being those which indeed influenced his actions. So much for the logic of historical research as necessarily reconstructive research based on understanding.35

The argument establishing the impossibility of causal predictions in the field of human knowledge and actions now might have left the impression that if this is so, then forecasting can be nothing but successful or unsuccessful guessing. This impression, however, would be just as wrong as it would be wrong to think that one can predict human action in the same way as one can predict the growing stages of apples. It is here where the unique Misesian insight into the interplay of economic theory and history enters the picture.36

In fact, the reason why the social and economic future cannot be regarded as entirely and absolutely uncertain should not be too hard to understand: The impossibility of causal predictions in the field of action was proven by means of an a priori argument. And this argument incorporated a priori true knowledge about actions as such: that they cannot be conceived of as governed by time-invariantly operating causes.

Thus, while economic forecasting will indeed always be a systematically unteachable art, it is at the same time true that all economic forecasts must be thought of as being constrained by the existence of a priori knowledge about actions as such.37

Take, for example, the quantity theory of money, the praxeological proposition that if you increase the quantity of money and the demand for money stays constant, then the purchasing power of money will fall. Our a priori knowledge about actions as such informs us that it is impossible to predict scientifically whether or not the quantity of money will be increased, decreased or left unchanged. Nor is it possible to predict scientifically whether or not, regardless of what happens to the quantity of money, the demand for money to be held in cash balances will go up or down or stay the same. We cannot claim to be able to predict such things because we cannot predict future states of knowledge of people. And yet these states evidentiy influence what happens with respect to the quantity of money and the demand for money Then, our theory, our praxeological knowledge incorporated in the quantity theory, has a rather limited usefulness for one’s business of predicting the economic future.

The theory would not allow one to predict future economic events even if, say, it is an established fact that the quantity of money had been expanded. One would still be unable to predict what would happen to the demand for money And though, of course, concurrent events regarding the demand for money do affect the shape of things to come (and cancel, increase, decrease, accelerate, or decelerate the effects stemming from the source of an increased money supply), such concurrent changes cannot in principle be predicted or experimentally held constant. It is an outright absurdity to conceive of subjective knowledge, whose every change has an impact on actions, as predictable on the basis of antecedent variables and as capable of being held constant. The very experimenter who wanted to hold knowledge constant would, in fact, have to presuppose that his knowledge, specifically his knowledge regarding the experiment’s outcome, could not be assumed to be constant over time.

The quantity theory of money then cannot render any specific economic event, certain or probable, on the basis of a formula employing prediction constants. However, the theory would nonetheless restrict the range of possibly correct predictions. And it would do this not as an empirical theory, but rather as a praxeological theory, acting as a logical constraint on our prediction-making.38 Predictions that are not in line with such knowledge (in our case: the quantity theory) are systematically flawed and making them leads to systematically increasing numbers of forecasting errors. This does not mean that someone who based his predictions on correct praxeological reasoning would necessarily have to be a better predictor of future economic events than someone who arrived at his predictions through logically flawed deliberations and chains of reasoning. It means that in the long run the praxeologically enlightened forecaster would average better than the unenlightened ones.

It is possible to make the wrong prediction in spite of the fact that one has correctly identified the event “increase in the money supply” and in spite of one’s praxeologically correct reasoning that such an event is by logical necessity connected with the event “drop in the purchasing power of money.” For one might go wrong predicting what will occur to the event “demand for money.” One may have predicted a constant demand for money, but the demand might actually increase. Thus the predicted inflation might not show up as expected. And on the other hand, it is equally possible that a person could make a correct forecast, i.e., there will be no drop in purchasing power, in spite of the fact that he was wrongly convinced that a rise in the quantity of money had nothing to do with money’s purchasing power. For it may be that another concurrent change occurred (the demand for money increased) which counteracted his wrong assessment of causes and consequences and accidentally happened to make his prediction right.

However, and this brings me back to my point that praxeology logically constrains our predictions of economic events: What if we assume that all forecasters, including those with and without sound praxeological knowledge, are on the average equally well-equipped to anticipate other concurrent changes? What if they are on the average equally lucky guessers of the social and economic future? Evidently, we must conclude then that forecasters making predictions in recognition of and in accordance with praxeological laws like the quantity theory of money will be more successful than that group of forecasters which is ignorant of praxeology.

It is impossible to build a prediction formula which employs the assumption of time-invariantly operating causes that would enable us to scientifically forecast changes in the demand for money. The demand for money is necessarily dependent on people’s future states of knowledge, and future knowledge is unpredictable. And thus praxeological knowledge has very limited predictive utility.39

Yet of all forecasters who correctly forecast that a change such as an increase in the demand for money will take place and who equally correctly perceive that an increase in the quantity of money has indeed happened, only those who recognize the quantity theory of money will make a correct prediction. And those whose convictions are at variance with praxeology will necessarily go wrong.

To understand the logic of economic forecasting and the practical function of praxeological reasoning, then, is to view the a priori theorems of economics as acting as logical constraints on empirical predictions and as imposing logical limits on what can or cannot happen in the future.

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