From the Economics of Laissez Faire to the Ethics of Libertarianism III.

So far it has been demonstrated that the right of original appropriation through actions is compatible with and implied by the nonaggression principle as the logically necessary presupposition of argumentation. Indirectly, of course, it has also been demonstrated that any rule specifying different rights cannot be justified. Before entering a more detailed analysis, though, of why it is that any alternative ethic is indefensible, a discussion which should throw some additional light on the importance of some of the stipulations of the libertarian theory of property, a few remarks about what is and what is not implied by classifying these latter norms as justified is in order.

In making this argument, one would not have to claim to have derived an “ought” from an “is.” In fact, one can readily subscribe to the almost generally accepted view that the gulf between “ought” and “is” is logically unbridgeable. 26 Rather, classifying the rulings of the libertarian theory of property in this way is a purely cognitive matter. It no more follows from the classification of the libertarian ethic as “fair” or “just” that one ought to act according to it, than it follows from the concept of validity or truth that one should always strive for it. To say that it is just also does not preclude the possibility of people proposing or even enforcing rules that are incompatible with this principle. As a matter of fact, the situation with respect to norms is very similar to that in other disciplines of scientific inquiry. The fact, for instance, that certain empirical statements are justified or justifiable and others are not does not imply that everybody only defends objective, valid statements. On the contrary, people can be wrong, even intentionally. But the distinction between objective and subjective, between true and false, does not lose any of its significance because of this. Instead, people who would do so would have to be classified as either uninformed or intentionally lying. The case is similar with respect to norms. Of course there are people, lots of them, who do not propagate or enforce norms that can be classified as valid according to the meaning of justification I have given above. However, the distinction between justifiable and nonjustifiable norms does not dissolve because of this, just as that between objective and subjective statement does not crumble because of the existence of uninformed or lying people. Rather, and accordingly, those people who would propagate and enforce such different, invalid norms would again have to be classified as uninformed or dishonest, insofar as one had made it clear to them that their alternative norm proposals or enforcements cannot and never will be justifiable in argumentation. There would be even more justification for doing so in the moral case than in the empirical one, since the validity of the nonaggression principle and that of the principle of original appropriation through action as its logically necessary corollary must be considered to be even more basic than any kind of valid or true statements. For what is valid or true has to be defined as that upon which everyone—acting according to this principle—can possibly agree. As I have just shown, at least the implicit acceptance of these rules is the necessary prerequisite to being able to be alive and argue at all.

Why is it then that other nonlibertarian property theories fail to be justifiable? First, it should be noted, as will become clear shortly, that all of the practiced alternatives to libertarianism and most of the theoretically proposed nonlibertarian ethics would not even pass the first formal universalization test and would fail for this fact alone! All these versions contain norms within their framework of legal rules which have the form, “some people do, and some people do not.” However, such rules that specify different rights or obligations for different classes of people have no chance of being accepted as fair by every potential participant in an argument for simply formal reasons. Unless the distinction made between different classes of people happens to be such that it is acceptable to both sides as grounded in the nature of things, such rules would not be acceptable because they would imply that one group is awarded legal privileges at the expense of complementary discriminations against another group. Some people, either those who are allowed to do something or those who are not, would not be able to agree that these were fair rules.  Since most alternative ethical proposals, as practiced or preached, have to rely on the enforcement of rules such as “some people have the obligation to pay taxes, and others have the right to consume them,” or “some people know what is good for you and are allowed to help you get these alleged blessings even if you do not want them, but you are not allowed to know what is good for them and help them accordingly,” or “some people have the right to determine who has too much of something and who too little, and others have the obligation to accept that,” or even more plainly, “the computer industry must pay to subsidize the farmers, the employed for the unemployed, the ones without kids for those with kids,” or vice versa. They all can be discarded as serious contenders to the claim of being a valid theory of norms qua property norm, because they all indicate by their very formulation that they are not universalizable.

What is wrong with a nonlibertarian ethic if this is resolved and there is indeed a theory formulated that contains exclusively universalizable norms of the type “nobody is allowed to” or “everybody can?” Even then the validity of such proposals could never hope to be proven—not because of formal reasons but because of their material specifications. Indeed, while the alternatives that can be refuted easily as regards their claim to moral validity on simple formal grounds can at least be practiced, the application of those more sophisticated versions that would pass the universalization test would prove for material reasons to be fatal: even if one tried to, they simply could never be implemented.

There are two related specifications in the libertarian property theory with at least one of which any alternative theory comes into conflict. According to the libertarian ethic, the first such specification is that aggression is defined as an invasion of the physical integrity of other people’s property.  There are popular attempts to define it as an invasion of the value or psychic integrity of other people’s property. Conservatism, for instance, aims at preserving a given distribution of wealth and values and attempts to bring those forces which could change the status quo under control by means of price controls, regulations, and behavioral controls. Clearly, in order to do so property rights to the value of things must be assumed to be justifiable, and an invasion of values, mutatis mutandis, would have to be classified as unjustifiable aggression. Not only does conservatism use this idea of property and aggression; redistributive socialism does, too. Property rights to values must be assumed to be legitimate when redistributive socialism allows me, for instance, to demand compensation from people whose chances or opportunities negatively affect mine. The same is true when compensation for committing psychological, or “structural violence” is requested.  In order to be able to ask for such compensation, what one must have done, namely affect my opportunities, my psychic integrity, or my feeling of what is owed to me, would have to be classified as an aggressive act.

Why is this idea of protecting the value of property unjustifiable? First, while every person, at least in principle, can have full control over whether or not his actions cause the physical characteristics of something to change and hence can also have full control over whether or not those actions are justifiable, control over whether or not one’s actions affect the value of somebody else’s property does not rest with the acting person but rather with other people and their subjective evaluations. Thus, no one could determine ex ante if his actions would be qualified as justifiable or unjustifiable. One would first have to interrogate the whole population to make sure that one’s planned actions would not change another person’s evaluations regarding his own property. Even then nobody could act until universal agreement was reached on who is supposed to do what with what, and at which point in time. Clearly, because of all the practical problems involved, everyone would be long dead and nobody could argue any longer, well before agreement could be reached.  Even more decisively, this position regarding property and aggression could not even be effectively argued because arguing in favor of any norm implies that there is conflict over the use of some scarce resources; otherwise, there would simply be no need for discussion. However, in order to argue that there is a way out of such conflicts it must be presupposed that actions must be allowed prior to any actual agreement or disagreement because if they were not, one could not even argue so. Yet if one can do this, and insofar as it exists as an argued intellectual position the position under scrutiny must assume that one can, then this is only possible because of the existence of objective borders of property—borders which anyone can recognize as such on his own without having to agree first with anyone else with respect to his system of values and evaluations. Such a value-protecting ethic, too, in spite of what it says, must in fact presuppose the existence of objective property borders rather than of borders determined by subjective evaluations, if only in order to have any surviving persons who can make its moral proposals.

The idea of protecting value instead of physical integrity also fails for a second related reason. Evidently, one’s value, for example on the labor or marriage market, can be and indeed is affected by other people’s physical integrity or degree of physical integrity. Thus, if one wanted property values to be protected, one would have to allow physical aggression against people. However, it is only because of the very fact that a person’s borders—that is the borders of a person’s property in his own body as his domain of exclusive control that another person is not allowed to cross unless he wishes to become an aggressor—are physical borders (intersubjectively ascertainable, and not just subjectively fancied borders) that everyone can agree on anything independently (and agreement means agreement among independent decision-making units!). Only because the protected borders of property are objective (i.e., fixed and recognizable as fixed prior to any conventional agreement), can there be argumentation and possibly agreement of and between independent decision-making units. Nobody could argue in favor of a property system defining borders of property in subjective, evaluative terms because simply to be able to say so presupposes that, contrary to what theory says, one must in fact be a physically independent unit saying it.

The situation is no less dire for alternative ethical proposals when one turns to the second essential specification of the rulings of the libertarian theory of property. The basic norms of libertarianism are characterized not only by the fact that property and aggression are defined in physical terms; it is of no less importance that property is defined as private, individualized property and that the meaning of original appropriation, which evidently implies making a distinction between prior and later, has been specified. It is with this additional specification as well that alternative, nonlibertarian ethics come into conflict. Instead of recognizing the vital importance of the prior-later distinction in deciding between conflicting property claims, they propose norms which in effect state that priority is irrelevant for making such a decision and that late-comers have as much of a right to ownership as first-comers. Clearly, this idea is involved when redistributive socialism makes the natural owners of wealth and/or their heirs pay a tax so that the unfortunate late-comers can participate in its consumption. It is also involved when the owner of a natural resource is forced to reduce (or increase) its present exploitation in the interest of posterity. Both times it only makes sense to do what one does when it is assumed that the person accumulating wealth first, or using the natural resource first, has thereby committed an aggression against some late-comers. If they had done nothing wrong, then the late-comers should have no such claim against them. 

What is wrong with this idea of dropping the prior-later distinction as morally irrelevant? First, if the late-comers (those who did not do something with some scarce goods), indeed had as much of a right to them as the first-comers (those who did do something with the scarce goods), then nobody would ever be allowed to do anything with anything, as one would have to have all of the late-comers’ consent prior to doing what one wanted to do. Indeed, as posterity would include one’s children’s children—people who come so late that one could not possibly ask them—to advocate a legal system that does not make use of the prior-later distinction as part of its underlying property theory is simply absurd because it implies advocating death but must presuppose life to advocate anything. Neither we, nor our forefathers, nor our progeny could, do, or will survive and say or argue anything if one followed this rule. In order for any person—past, present or future—to argue anything it must be possible to survive now. Nobody can wait and suspend acting until everyone of an indeterminate class of late-comers happens to come around and agree to what one wants to do. Rather, insofar as a person finds himself alone, he must be able to act, to use, to produce, and to consume goods straightaway, prior to any agreement with people who are simply not around (and perhaps never will be). Insofar as a person finds himself in the company of others and there is conflict over how to use a given scarce resource, he must be able to resolve the problem at a definite point in time with a definite number of people instead of having to wait unspecified periods of time for unspecified numbers of people. Simply in order to survive, then, which is a prerequisite to arguing in favor or against anything, property rights cannot be conceived of as being timeless and nonspecific regarding the number of people concerned. Rather, they must be thought of as originating through acting at definite points in time for definite acting individuals. 

Furthermore, the idea of abandoning the prior-later distinction would simply be incompatible with the nonaggression principle as the practical foundation of argumentation. To argue and possibly agree with someone (if only on the fact that there is disagreement) means to recognize the prior right of exclusive control over one’s own body. Otherwise, it would be impossible for anybody to say anything at a definite point in time and for someone else to be able to reply, for neither the first nor the second speaker would be a physically independent decision-making unit anymore at any time. Eliminating the prior-later distinction, then, is tantamount to eliminating the possibility of arguing and reaching agreement. However, as one cannot argue that there is no possibility for discussion without the prior control of every person over his own body being recognized and accepted as fair, a late-comer ethic that does not make this distinction could never be agreed upon by anyone. Simply saying that it could be would imply a contradiction, for one’s being able to say so would presuppose one’s existence for an independent decision-making unit at a definite point in time.

Hence, one is forced to conclude that the libertarian ethic not only can be justified and justified by means of a priori reasoning, but that no alternative ethic can be defended argumentatively.

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From the Economics of Laissez Faire to the Ethics of Libertarianism II.

Yet Rothbard is not content with having developed a full-fledged economic defense of a pure market system. Culminating in 1982 with his second magnum opus, The Ethics of Liberty, he proceeds to provide us with a comprehensive system of ethics to complement and complete the task of justifying laissez faire.

Mises, along with most social scientists, accepts the Humean verdict that reason is and can be no more than the slave of the passions. That is to say reason or science can do no more than inform us whether or not certain means are appropriate for bringing about certain results or ends. It is beyond the powers of reason, though, to teach us what ends we should choose or what ends can or cannot be justified. Ultimately, what ends are chosen is arbitrary from a scientific point of view; they are a matter of emotional whim. To be sure, Mises, like most other economists, is committed to a sort of utilitarianism. He favors life over death, health over sickness, abundance over poverty. And insofar as such ends, in particular the goal of achieving the highest possible standard of living for everyone, are indeed shared by other people, as he assumes they generally are, as an economic scientist Mises recommends that the correct course of action to choose is a policy of laissez faire.  And doubtlessly, insofar as economics can say this much, the case for laissez faire is a highly important one. However, what if people do not consider prosperity to be their ultimate goal? As Rothbard points out, economic analysis only establishes that laissez faire will lead to higher standards of living in the long run. In the long run, however, one will be dead. Why then would it not be quite reasonable for a person to argue that while one perfectly agreed with everything economics had to say, one was still more concerned about one’s welfare in the short run and there, clearly for no economist to deny, a privilege or a subsidy would be the nicest thing? Moreover, why should social welfare in the long run be one’s first concern at all? Couldn’t people advocate poverty, either as an ultimate value in itself or as a means of bringing about some other ultimate value such as equality? The answer, of course, is that such proposals are made. However, whenever they are, not only has economics nothing to say, but according to Mises and other utilitarians there is nothing more to be said at all, since no reasonable, scientific way of choosing between conflicting values exists, as ultimately they are all arbitrary. 

Against this position Rothbard takes sides with the philosophical tradition of rational ethics claiming that reason is capable of yielding cognitive value statements regarding man’s proper ends. 11 More specifically, he aligns himself with the natural law or natural rights tradition of philosophic thought which holds that universally valid norms can be discerned by means of reason as grounded in the very nature of man.  The Ethics of Liberty presents the full case for the libertarian property norms being precisely such rules.

Agreeing with Rothbard on the possibility of a rational ethic and, more specifically, on the fact that only a libertarian ethic can indeed be morally justified, I propose a different, non-natural-rights approach to establishing these two related claims. It has been a common quarrel with the natural rights position, even on the part of sympathetic readers, that the concept of human nature is far “too diffuse and varied to provide a determinate set of contents of natural law.”  Furthermore, its description of rationality is equally ambiguous in that it does not seem to distinguish between the role of reason in establishing empirical laws of nature on the one hand and normative laws of human conduct on the other.  Avoiding such difficulties from the outset, I claim the following approach to be both more straightforward and more rigorous as regards its starting point as well as its methods of deriving its conclusions. Moreover, as I will explain later, my approach also seems to be more in line with Rothbard’s when it comes to justifying the specific norms of libertarianism than the rather vague methodological prescriptions of the natural rights theorists. 

Let me start by asking what is wrong with the position taken by Mises and so many others that the choice between values is ultimately arbitrary? First, it should be noted that such a position assumes that at least the question of whether or not value judgments or normative statements can be justified is itself a cognitive problem. If this were not assumed, Mises could not even say what he evidently says and claims to be the case. His position simply could not exist as an arguable intellectual position.

At first glance this does not seem to take one very far. Indeed, it still seems to be a far cry from this insight to the actual proof that normative statements can be justified and that it is only the libertarian ethic which can be defended. This impression is wrong, however, and there is already much more won here than might be suspected. The argument shows us that any truth claim, the claim connected with any proposition that it is true, objective or valid (all terms used synonymously here), is and must be raised and settled in the course of an argumentation. Since it cannot be disputed that this is so (one cannot communicate and argue that one cannot communicate and argue), and since it must be assumed that everyone knows what it means to claim something to be true (one cannot deny this statement without claiming its negation to be true), this very fact has been aptly called “the a priori of communication and argumentation.” 

Arguing never consists of just free-floating propositions claiming to be true. Rather, argumentation is always an activity, too. However, given that truth claims are raised and settled in argumentation and that argumentation, aside from whatever it is that is said in its course, is a practical affair, it follows that intersubjectively meaningful norms must exist—precisely those which make some action an argumentation—which have a special cognitive status in that they are the practical preconditions of objectivity and truth.

Hence, one reaches the conclusion that norms must indeed be assumed to be justifiable as valid. It is simply impossible to argue otherwise, because the ability to argue so would in fact already presuppose the validity of those norms which underlie any argumentation whatever. In contradistinction to the natural rights theorists, though, one sees that the answer to the question of which ends can or cannot be justified is not to be deduced from the wider concept of human nature but from the narrower one of argumentation.  With this, then, the peculiar role of reason in determining the contents of ethics can be given a precise description. Contrary to the role of reason in establishing empirical laws of nature, in determining moral laws reason can claim to yield results which can be shown to be valid a priori. It only makes explicit what is already implied in the concept of argumentation itself, and in analyzing any actual norm proposal its task is merely confined to analyzing whether or not it is logically consistent with the very ethics which the proponent must presuppose as valid insofar as he is able to make his proposal at all. 

But what are the strictures of the ethics-implied-in-argumentation whose validity cannot be disputed because disputing it would implicitly presuppose it? Quite normally it has been observed that argumentation implies that a proposition claims universal acceptability or should it be a norm proposal, that it be “universalizable.” Applied to norm proposals, this is the idea, as formulated in the Golden Rule of ethics or in the Kantian Categorical Imperative, that only those norms can be justified that can be formulated as general principles which without exception are valid for everyone.  Indeed as it is implied in argumentation that everyone who can understand an argument must in principle be able to be convinced by it simply because of its argumentative force, the universalization principle of ethics can now be understood and explained as implied in the wider a priori of communication and argumentation.  Yet the universalization principle only provides one with a purely formal criterion for morality. To be sure, checked against this criterion, all proposals for valid norms which would specify different rules for different classes of people could be shown to have no legitimate claim of being universally acceptable as fair norms, unless the distinction between different classes of people were such that it implied no discrimination but could instead be accepted as founded in the nature of things again by everybody. However, while some norms might not pass the test of universalization, if enough attention were paid to their formulation, the most ridiculous norms (and what is more relevant even openly incompatible norms) could easily and equally well pass it. For example, “everybody must get drunk on Sundays or else he will be fined” or “anyone who drinks any alcohol will be punished” are both rules that do not allow discrimination among groups of people and thus could both claim to satisfy the condition of universalization.

Clearly then, the universalization principle alone would not provide one with any positive set of norms that could be demonstrated to be justified. However, there are other positive norms implied in argumentation apart from the universalization principle. In order to recognize them, it is only necessary to call to mind three interrelated facts. First, that argumentation is not only a cognitive but also a practical affair. Second, that argumentation, as a form of action, implies the use of the scarce resource of one’s body. And third, that argumentation is a conflict-free way of interacting—not in the sense that there is always agreement on the things said, but in the sense that as long as argumentation is in progress, it is always possible to agree at least on the fact that there is disagreement about the validity of what has been said. This is only to say that a mutual recognition of each person’s exclusive control over his own body must be assumed to exist as long as there is argumentation (note again that it is impossible to deny this and claim this denial to be true without implicitly having to admit its truth).

Hence, one would have to conclude that the norm implied in argumentation is that everybody has the right to exclusively control his own body as his instrument of action and cognition. It is only as long as there is at least an implicit recognition of each individual’s property right in his or her own body that argumentation can take place.  Only if this right is recognized is it possible for someone to agree to what has been said in an argument and can what has been said be validated, or is it possible to say no and to agree only on the fact that there is disagreement. Indeed, anyone who would try to justify any norm would have to presuppose the property right in one’s body as a valid norm, simply in order to say this is what I claim to be true and objective. Any person who would try to dispute the property right in one’s own body would become caught up in a contradiction.

Thus it can be stated that whenever a person claims that some statement can be justified, he at least implicitly assumes the following norm to be justified: “nobody has the right to uninvitedly aggress against the body of any other person and thus delimit or restrict anyone’s control over his own body.” This rule is implied in the concept of argumentative justification. Justifying means justifying without having to rely on coercion. In fact, if one formulated the opposite of this rule (i.e., everybody has the right to uninvitedly aggress against other people [a rule, by the way, that would formally pass the universalization test!]), then it is easy to see that this rule is not and never could be defended in argumentation. To do so would presuppose the validity of precisely its opposite (i.e., the aforementioned principle of nonaggression).

It may seem that with this justification of a property norm regarding a person’s body not much is won, as conflicts over bodies, for whose possible avoidance the nonaggression principle formulates a universally justifiable solution, make up only a small portion of all possible conflicts. However, this impression is not correct. To be sure, people do not live on air and love alone. They need a smaller or greater number of other goods as well simply to survive—and only he who survives can sustain argumentation, let alone lead a comfortable life. With respect to all of these other goods norms are needed too, as it could come to conflicting evaluations regarding their use. In fact, any other norm now must be logically compatible with the nonaggression principle in order to be justified and, mutatis mutandis, every norm that could be shown to be incompatible with this principle would have to be considered invalid. In addition, as the things for which norms have to be formulated are scarce goods—just as a person’s body is a scarce good—and as it is only necessary to formulate norms at all because goods are scarce and not because they are particular kinds of scarce goods, the specifications of the nonaggression principle, conceived as a special property norm referring to a specific kind of good, must already contain those of a general theory of property.

I will first state this general theory of property as a set of rulings applicable to all goods, with the goal of helping to avoid all possible conflicts by means of uniform principles, and I will then demonstrate how this general theory is implied in the nonaggression principle. According to the nonaggression principle a person can do with his body whatever he wants as long as he does not thereby aggress against another person’s body. Thus, that person could also make use of other scarce means, just as one makes use of one’s own body, provided these other things have not already been appropriated by someone else but are still in a natural unowned state. As soon as scarce resources are visibly appropriated—as soon as somebody “mixes his labor” with them, as John Locke phrased it,  and there are objective traces of this—then property (the right of exclusive control), can only be acquired by a contractual transfer of property titles from a previous to a later owner, and any attempt to unilaterally delimit this exclusive control of previous owners or any unsolicited transformation of the physical characteristics of the scarce means in question is, in strict analogy with aggressions against other people’s bodies, an unjustifiable action. 

The compatibility of this principle with that of nonaggression can be demonstrated by means of an argumentum a contrario. First, it should be noted that if no one had the right to acquire and control anything except his own body (a rule that would pass the formal universalization test), then we would all cease to exist and the problem of the justification of normative statements simply would not exist. The existence of this problem is only possible because we are alive, and our existence is due to the fact that we do not, indeed cannot accept a norm outlawing property in other scarce goods next to and in addition to that of one’s physical body. Hence, the right to acquire such goods must be assumed to exist. Now if this is so and if one does not have the right to acquire such rights of exclusive control over unused, nature-given things through one’s own work (by doing something with things with which no one else has ever done anything before), and if other people have the right to disregard one’s ownership claim to things which they did not work on or put to some particular use before, then this is only possible if one can acquire property titles not through labor (i.e., by establishing some objective, intersubjectively controllable link between a particular person and a particular scarce resource), but simply by verbal declaration, by decree.  However, the position of property titles being acquired through declaration is incompatible with the above justified nonaggression principle regarding bodies.

For one thing, if one could indeed appropriate property by decree, this would imply that it would also be possible for one to simply declare another person’s body to be one’s own. Clearly enough, this would conflict with the ruling of the nonaggression principle which makes a sharp distinction between one’s own body and the body of another person. Furthermore, this distinction can only be made in such a clear-cut and unambiguous way because for bodies, as for anything else, the separation between “mine and yours” is not based on verbal declarations, but on action. The observation is based on some particular scarce resource that had in fact—for everyone to see and verify because objective indicators for this existed—been made an expression or materialization of one’s own will or, as the case may be, of somebody else’s will. More importantly, to say that property could be acquired not through action but hrough a declaration would involve an obvious practical contradiction because nobody could say and declare so unless his right of exclusive control over his body as his own instrument of saying anything was in fact already presupposed, in spite of what was actually said.

As I intimated earlier, this defense of private property is essentially also Rothbard’s. In spite of his formal allegiance to the natural rights tradition, Rothbard, in what I consider his most crucial argument in defense of a private property ethic, not only chooses essentially the same starting point—argumentation—but also gives a justification by means of a priori reasoning almost identical to the one just developed. To prove the point I can do no better than simply quote:

Now, any person participating in any sort of discussion, including one on values, is, by virtue of so participating, alive and affirming life. For if he were really opposed to life, he would have no business continuing to be alive. Hence, the supposed opponent of life is really affirming it in the very process of discussion, and hence the preservation and furtherance of one’s life takes on the stature of an incontestable axiom.

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From the Economics of Laissez Faire to the Ethics of Libertarianism

Ludwig von Mises, without a doubt one of the most rigorous defenders of a social system of laissez faire unhampered by any governmental intervention in the history of economic thought, admits to two and only two deficiencies of a pure market system. While according to Mises it is generally true that a market economy produces the highest possible standard of living, this will not happen if any firm succeeds in securing monopoly prices for its goods, and the market cannot itself produce the goods of law and order. Law and order, or the protection of the legal framework underlying the market order, are considered by Mises, in current terminology, as “public goods,” whose production must be undertaken by the state, which is not itself subject to the discipline of the market, but instead relies on coercion, in particular on compulsory taxation.

When Murray N. Rothbard entered the scene in 1962 with his Man, Economy, and State, he not only immediately became the foremost student of his revered teacher Ludwig von Mises, but standing on the shoulders of this giant, he also established himself at the age of 36 as an intellectual giant in his own right, going, in truly Misesian spirit, beyond Mises himself. He recognized Mises’s position regarding the exceptional character of monopoly prices and public goods as incompatible with the very edifice of subjectivist economic theory laid down in Human Action, and presented for the first time a complete and fully consistent economic defense of a pure market system.

Regarding the problem of monopoly prices, Rothbard demonstrated that on the free market no price whatever can be identified as monopolistic or competitive, either by the “monopolist” himself or by any “neutral” outside observer. Economic orthodoxy, which includes Misesian Austrian economics, teaches that monopolistic prices are higher prices attained by restricting production, at which prices sales then bring higher returns than those to be gained by selling an unrestricted output at lower competitive prices. And, so the story continues, since such restrictive measures which the profit motive impels the monopolist to use would imply that the consumers would pay more for less, the existence of monopoly prices provides for the possibility of market failures.  As Rothbard points out, there are two related fallacies involved in this reasoning.

First, it must be noted that every restrictive action must, by definition, have a complementary expansionary aspect. The factors of production which the monopolist releases from employment in some production line A do not simply disappear. Rather, they must be used otherwise: either for the production of other exchange goods or for an expansion in the production of the good of leisure for an owner of a labor factor. Now suppose the monopolist restricts production in line A at time k as compared with t1, and prices and returns indeed go up. Following orthodoxy this would make the higher price at t2 a monopoly price and the consumers worse off. But is this really the case? Can this situation be distinguished from a situation in which the demand for the product in question changed from t1 to t2 (the demand curve shifted to the right)? The answer, of course, is no, since demand curves are never simply “given” for any good. Because of the change in demand for the good in question, the competitive price at t1 has become subcompetitive at t2, and the higher price at t2 is simply a move from this subcompetitive to the new competitive price. The restrictive move of the monopolist also does not imply a worsening of the situation of the consumers since, by necessity, it must be coupled with a complementary expansionary move in other production lines. The monopolist’s restrictive action could not be distinguished from any “normal” change in the production structure that was caused by relative changes in the consumer demand for various goods, including leisure.

“There is no way whatever” writes Rothbard, to distinguish such a “restriction” and corollary expansion from the alleged “monopoly-price” situation.  But if a concept has no possible grounding in reality, then it is an empty and illusory, and not a meaningful, concept. On the free market there is no way of distinguishing a “monopoly price” from a “competitive price” or a “subcompetitive price” or of establishing any changes as movements from one to the other. No criteria can be found for making such distinctions. The concept is therefore untenable. We can speak only of the free-market price.

Regarding the second alleged imperfection of markets, the problem of public goods and in particular of the good of law and order, Rothbard demonstrates that the advocates of this position do not succeed in establishing their claim that there are two categorically different types of economic goods—public and private—for which categorically different types of economic analysis would apply. Even if this distinction were assumed to hold water, they also can not furnish any economic reason why such public goods must be supplied by the state.  Orthodoxy holds that certain goods and services, of which law and order are usually considered to be the prototypes, have the special characteristic that their enjoyment cannot be restricted to those persons who actually finance their provision. Such goods are called public goods. As they cannot be provided by markets (at least not in sufficient quantity or quality) because of this “free rider” problem connected with them, but are nonetheless valued goods, the state has to jump in to secure their production, so the argument goes.  In his refutation of this reasoning Rothbard first makes us aware of the following: for something to be an economic good at all, it must be scarce and must be realized as scarce by someone. In other words, something is not a good-as-such, but goods are goods only in the eyes of some beholder. But when goods are never goods-as-such, when no physico-chemical analysis can establish something as an economic good, then there is also no fixed, objective criterion for classifying goods as public or private. They can never be private or public goods as such; their private or public character depends on how few or how many people consider them goods (or for that matter, bads), with the degree to which they are private or public changing as these evaluations change and ranging from 1 to infinity. Even seemingly completely private things like the interior of my apartment or the color of my underwear thus can become public goods as soon as somebody starts caring about them. And seemingly public goods like the exterior of my house or the color of my overalls can become extremely private goods as soon as other people stop caring about them. Moreover, every good can change its characteristics again and again; it can even turn from a public or private good to a public or private bad and vice versa, depending solely on the changes in this caring and uncaring. However, if this is so, no decision can be based on the classification of goods as private or public: in fact, if this were done, it would not only become necessary to ask virtually each individual person with respect to every single good, whether or not he happened to care about it, and if so, to what extent, in order to find out who might profit from what and should hence participate in its financing. It would also become necessary to monitor all changes in such evaluation continually, with the result being that no definite decision could ever be made regarding the production of anything, and all of us would be long dead as a consequence of such a nonsensical theory.

Second, even if all these difficulties were set aside, the conclusion reached by the public goods theorists is a glaring non sequitur, as Rothbard shows. For one thing, to come to the conclusion that the state has to provide public goods that otherwise would not be produced, one must smuggle a norm into one’s chain of reasoning. Otherwise, from the statement that because of some special characteristics certain goods would not be produced, one could never reach the conclusion that these goods should be produced. With a norm required to justify their conclusion, the public goods theorists clearly have left the bounds of economics as a positive science and transgressed into the field of ethics. None of them, however, offers anything faintly resembling a clear system of ethics. Moreover, even the utilitarian reasoning employed by them is blatantly wrong. It might well be that it would be better to have these public goods than not to have them, though it should not be ignored that there is no a priori reason that even this must be so, as it is clearly possible, and even known to be a fact, that an anarchist exists who abhors any state action and would rather prefer not to have the so-called public goods at all if the alternative is to have them provided by the state. But even if the argument thus far is conceded, the conclusion drawn is still invalid. Since in order to finance the supposedly desirable goods resources must be withdrawn from possible alternative uses, the only relevant question is whether or not these alternative uses to which the resources could have been put are more valuable than the value that is attached to the public goods. The answer to this question is perfectly clear: In terms of consumer evaluations, the value of the public goods is relatively lower than that of the competing private goods because if one leaves the choice to the consumers, they evidently will prefer different ways of spending their money (otherwise no coercion would have been necessary in the first place). This proves that the resources used up for the provision of public goods are wasted in providing consumers with goods and services which are at best only of secondary importance. In short, even if one assumes that public goods exist, they will stand in competition to private ones. To find out if they are more urgently desired or not and to what extent, there is only one method: analyzing the profit and loss accounts of freely competing private enterprises. Hence, regarding the provision of law and order, the conclusion is reached that even if it is a public good, the only way to make sure that its production does not take place at the expense of more highly valued private goods and that the kind of law and order that is supplied is indeed the most highly valued one, law and order, like any other good, must be provided by a market of freely competing firms.  Rothbard sums it up as follows:

[The] view [that free-market action must be brought back into optimality by corrective State action] completely misconceives the way in which economic science asserts that free-market action is ever optimal. It is optimal, not from the standpoint of the personal ethical view of an economist, but from the standpoint of the free, voluntary actions of all participants and in satisfying the freely expressed needs of the consumers. Government interference, therefore, will necessarily and always move away from such an optimum.

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On Praxeology III

This will suffice 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 was convinced of the great importance of this insight for rationalist philosophy. Yet he 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.  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.  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. 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 one hand, actions are more fundamental than argumentation with whose existence the idea of validity emerges, as argumentation is only a subclass of action. On the other hand, to recognize this regarding action and argumentation and their relation to each other requires argumentation. Thus, in this sense, argumentation must be considered more fundamental than action, for without argumentation nothing can be said to be known about action. However, argumentation itself reveals the possibility that argumentation presupposes action because 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 have knowledge implied in action. Thus, 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 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 an 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.

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, preferred state of affairs (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 experiments 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 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. More specifically, it cannot 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 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. The means employed must be economized, too. It is 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).  Yet knowledge is not a free good in the same sense as 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 of great significance in itself, it does have some highly important implications. For one thing, with this insight one recurring difficulty of rationalist philosophy is eliminated. It has been a common quarrel with rationalism in the Leibniz-Kant tradition that it seemed to imply a sort of idealism. Realizing that a priori true propositions could not possibly be derived from observations, rationalism explained 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. However, as empiricists have been 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 would 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. Clearly, such an assertion seems 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.”

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. 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 cannot be undone). 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.  Moreover, with the recognition of praxeological constraints on the structure of knowledge, these various rationalist endeavors become systematically integrated into one unified body of rationalist philosophy. When one understands that knowledge as displayed in argumentation is a peculiar category of action, the validity of the perennial rationalist claim that the laws of logic—beginning here with the most fundamental ones 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, becomes clear. They are as much laws of thinking as of reality because they are laws that have their ultimate foundation in action and can 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”) as 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. It is this 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,” “some,” “and,” “or,” “if-then,” and “not.”  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.” 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.” Also, arithmetic deals with real things: with constructed or constructively identified units of something. It demonstrates what relations 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 rather 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.”  Again, one can say 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,  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 Euclidean geometry is a priori 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, a posteriori physics, or as being empirically meaningless formalisms. 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 in those fields ever thinks of such propositions as only hypothetically true.  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 relates something to a standard. Without standards, there is no measurement, and there is no measurement 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 that 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 must simultaneously be regarded as an empirically meaningful discipline because it is not only the very precondition for any empirical spatial description, but it is also the precondition for any active orientation in space.  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.  The ultimate justification for this dualist position (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, preferred state of affairs (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 experiments 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 o

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 as 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.

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: in physically stating either position and in 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.

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. 27 Everything else there is to know about this range of phenomena must be derived from contingent observations and thus represents a posteriori knowledge. In particular, all knowledge about two or more specific observational events being causally related or not is a posteriori 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. Therefore, 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, a posteriori 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. 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 a posteriori. 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 future states of knowledge could never be predicted on the basis of constantly operating empirical causes. Obviously, such a delineation of a branch of a posteriori and reconstructive science of action fits the usual description of such disciplines as history and sociology.

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. Second, 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. Since these laws are 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 is ultimately grounded in our understanding of action and in so far praxeology must 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.

 IV.

In so establishing the place of praxeology proper, I have come full circle in delineating 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. It has also been my objective to indicate that the Misesian insight into the nature of praxeology 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 must 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 an intellectual defense against skepticism and relativism. For the economist in the tradition of Mises it means that he should explicitly come to recognize the Misesian’s place within the wider tradition of Western rationalism; and that he should 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

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 lead to intellectual disaster, i.e., to false economic doctrines. Accordingly, three of Mises’s books are devoted to clarifying the logical foundations of economics: His early Epistemological Problems of Economics, published in German in 1933; his Theory and History in 1957; and his Ultimate Foundation of Economic Science in 1962, Mises’s last book, which appeared when he was already well past his eightieth birthday. His works in the field of economics proper 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 remaining nearly 800 pages of the book are permeated with epistemological considerations.

Quite in line with the tradition of Mises, the foundations of economics are also the subject of this chapter. I have set myself a twofold goal. First, I will 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). Second, I will demonstrate why Mises’s solution is much more than just an incontestable insight into the nature of economics and economic propositions.
Mises 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 will show that it is praxeology which must be regarded as the very foundation of epistemology, and that Mises, in addition to his great achievements as an economist, also contributed pathbreaking insights regarding the justification of the entire enterprise of rationalist philosophy. 

II.

Let me begin with Mises’s solution. What is the logical status of a typical economic proposition 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 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 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. 

Empiricism considers nature and the natural sciences to be its model. According to empiricism, the just mentioned 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 use 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 that 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 could not be ruled out, however, that it might show up as soon as some other circumstances are 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 with 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. 

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 its former prominence has been reduced considerably. However, over roughly the last decade historicism has regained momentum among the Western world’s academia. Today it is pervasive under the names of hermeneutics, rhetoric, deconstructivism, and epistemological anarchism. 

For historicism, and most conspicuously for its contemporary versions, the model is not nature but a literary text. According to the historicist doctrine, economic phenomena 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 as one can always invent different literary stories, history and the sequence of historical events might also 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 are also not constrained by any objective law. In literary production anything can be expressed or interpreted in any way, 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, history, economics, and literary criticism are matters of esthetics for the historicist-hermeneutician. Accordingly, his output takes on the form of disquisitions on what someone feels about what he feels was felt by someone else. This is a literary form with which we are only too familiar, in particular in such fields as sociology and political science. 

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 chosen models: nature on the one hand and literary texts on the other. In any case, with regard to 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 forever subject for its validation to confirming or disconfirming experiences popping up here or there. And to conceive of the phenomena referred to in the law as quantifiable magnitudes seems to be nothing short of 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 wishes to do so seems absurd. 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. Contrary to historicism, it would seem that what they state could not possibly be undone in all of history and contain conceptual distinctions which, while they refer to subjective events, are nonetheless objectively constrained and incorporate universally valid knowledge.

Like most of the better known economists before him, Mises shares these intuitions. 6 Yet in his quest of the foundation of economics, Mises goes beyond intuition. He takes on the challenge posed by empiricism and historicism in order to reconstruct the basis on which these intuitions can be understood as correct and justified systematically. He does not want thereby to 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. 7 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. It would 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 (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 on its own account, for empiricism provides us with meaningful empirical knowledge when it informs us that our economic concepts are grounded in observations. However, the concepts of observation and measurement, which empiricism must employ in claiming what it does, are themselves 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 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. 8
Regarding historicism, its self-contradictions are no less manifest. 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 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 a fleeting truth value: it may be true now, if we wish, yet possibly false in a moment, in case we do not, and no one would ever know whether we do or do not. However, if this were the status of the basic historicist premise, it too would obviously not qualify as 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. 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 to utter meaningless sounds such as abracadabra. However, if this is the case, 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, Chinese, or any other language I wish, and in so far 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. 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. 

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.  He takes Leibniz’s side 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 for such an undertaking the means of formal logic are insufficient and observations are unnecessary.

This 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 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. Second, 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 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.  Rather, what makes them self-evident material axioms is the fact that no one can deny their validity without self-contradiction, for 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).  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 concerns 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 trivial? And what has economics got to do with this? Of course, it was previously recognized that economic concepts such as prices, costs, production, money, and credit had something to do with the fact that there were acting people. But that and how all of economics could be grounded in and reconstructed based on such a trivial proposition, is anything but clear. It is one of Mises’s greatest achievements to have shown precisely 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 have thought 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 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 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 and always involve the choice of 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 (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. Finally, 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 (a result whose value is ranked higher than that of the foregone opportunity), and 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 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. Further, while they and their interrelations are not obviously implied in the action axiom, once it has been made explicit that and how they are implied, one no longer has any difficulty recognizing them as being a priori true in the same sense as the axiom itself is. 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 leading to a profit or a loss. Thus, it is manifestly impossible to 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, as making an observation or speaking are also 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. For instance, the law of marginal utility  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 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 must be valid a priori. These propositions’ validity ultimately goes back to 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 does historicism, that economics has nothing to say about constant and invariable relations but merely deals with historically accidental events. To say so 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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