Was Mises right?

Abstract

This paper argues that Mises's methodological position has been misunderstood by both friends and foes alike. On the one hand, Mises's critics wrongly characterize his position as rejecting empirical work. On the other hand, his defenders wrongly interpret his stance as rejecting empirical analyses on the grounds that they contradict apriorism and push economics towards historicism. We show that Mises's methodological position occupies a unique place that is at once both wholly aprioristic and radically empirical.

Keywords:

• Ludwig von Mises, economic methodology, apriorism

Acknowledgements

The authors thank the Editor and two anonymous referees for helpful comments and suggestions. The financial assistance of the Olofsson Weaver Fellowship, the Earhart Foundation, and the Mercatus Center are gratefully acknowledged. Leeson was the F.A. Hayek Fellow at the London School of Economics at the time of this research's acceptance. He wishes to thank the STICERD Center and the Hayek Fellowship for their support in this work.

Notes

1 Alfred Schutz (1967) and Felix Kaufmann (1944) were students of Mises who attempted to critically reconstruct Mises's methodology through the philosophy of Husserl (Schutz) and positivism (Kaufmann) and develop a general methodological stance for the social sciences.

2 See, for instance, Rothbard (1957, 1972). Rothbard (1957), however, defends apriorism on slightly different grounds than Mises. He maintains that while the starting point of economic theory—the proposition that all humans behave purposively—may be known via introspection (per Mises), it can also be defended as aprioristic if it is learned by appealing to “broad empirical” observation. In this way, Rothbard introduces what he calls an “Aristotelian” derivation of the action axiom's aprioristic status. Also on this issue, see Smith (1996) who defends the view of an ontological a priori—a “deep-lying a priori dimension on the side of the things themselves.'' Kirzner (2001) recounts a story in which Mises allegedly told him that the action axiom was derived from “experience” as well. In his first book and doctoral dissertation (1960) written under the direction of Mises, however, Kirzner maintains the traditional Misesian argument that we know humans act by way of introspection.

3 Boehm-Bawerk (1884 – 1921: II 212 – 213) divides price theory into a first part, which is pure theory of exchange and price, and a second part of price theory which incorporates into that analysis different individual motivations, differing empirical circumstance and alternative concrete institutions. “The amount of attention devoted by economists to each of these two parts of the theory of price has varied with the prevailing phase in methods of research. As long as the abstractly deductive phase characteristic of the English school was in the ascendancy, the first part of the price problem was almost the only one to be treated, and much too nearly to the complete exclusion of the other. Later on, the historical method, originating in Germany, took over the lead. It was characterized by a fondness for emphasizing not only the general, but the particular as well, for noting not only the influence of broader types, but also that of national, social and individual peculiarities.” While Boehm-Bawerk saw his own main contributions to the area of pure theory, he argues that “I acknowledge that what I am offering indubitably calls for complementary treatment of the second part of the theory of price …” (1884 – 1921: 213).

4 And we should add that Mises was ideologically uncomfortable as well. Put the two together, and the claim to intellectual legitimacy by Mises was hard to maintain during the majority of his career. He was a man who was held to be both methodologically and ideologically suspect. But we would argue that Mises position (both methodologically and ideologically) is actually much more in line with the mainstream of political and economic thought historically contemplated than anyone cared to admit during his lifetime.

5 Apriorism was not alien to economics at this time as was evident in Robbins (1932) and Knight (1940). However, by the time Friedman published his essay (1953) it was standard for economists to argue that economic science required submitting falsifiable hypotheses to empirical test.

6 Hutchison (1938) was the most ardent supporter of this position. It is also important to remember that, as his work indicates, the vehemence with which positivism was presented in economics was in large part ideologically motivated—to be used as a philosophical hammer with which to defeat ideological systems such as Marxism and Nazism from intruding into the realm of science as they had in the 1930s.

7 Contrast this with the position developed by Max Weber and Ludwig von Mises for assuring value-free analysis. Weber and Mises were pre-positivistic positive economists and their position is important to articulate as an alternative to the positivistic notion of value-freedom. For discussions of Weber's development of his argument see Swedberg (1997) and Caldwell (2003). Also see Boettke (1995 and 1998b).

8 See also, Greaves (1974) who compiled a glossary of terms including “logical positivism” as a companion to Mises's Human Action, which Mises oversaw and approved.

9 Mises's point about the impossibility of unambiguous tests of theory can be understood as anticipating the more refined Duhem-Quine thesis which stated that the truth or falsity of a theoretical statement cannot be determined independently of a network of statements. See Boettke (1998a).

10 On the issue of fallibility in Mises's methodology see also our discussion of Smith (1990, 1994, 1996), evolution and Mises later in this section.

11 Austrian writers from Wieser (1927) to Mises (1949) to Hayek (1943) have emphasized ‘knowledge from within’ as a distinct characteristic of the human sciences.

12 Besides Mises, see also Hayek's (1952) classic work The Counter-Revolution of Science on this point.

13 Economic laws are deduced from the axiom of action aprioristically with the aid of the ceteris paribus assumption that enables a sort of controlled mental experiment. And theoretical progress in the human sciences, according to Mises, occurs by way of these mental experiments. Mises goes as far as to say that the method of praxeology is the method of imaginary constructions (Mises 1949: 237 – 238).

14 This is why Cowen and Fink's (1985) suggestion that the evenly rotating economy (ERE) is an inconsistent construct and that Arrow-Hahn-Debreu's model of general competitive equilibrium serves as a better model can be challenged. It depends on the purpose for which the model construct is being used. Furthermore, Caldwell's (1984) criticism that among competing a priori theories one is left powerless to choose between them must also be challenged. Criteria of choice are provided by relevance for the task the scientist hopes to put the thought experiment toward. Note the difference here between our response to Caldwell, which utilizes what Smith (1996) calls the Kant–Mises “subjectivist” apriorism, and Smith's own response, which is closer to Rothbard's position and overcomes Caldwell's criticism by pointing to an “objectivist” apriorism—“an a priori in the real world” (1996: 191).

15 It should be noted that such use of empirical subsidiary postulates does not alter the aprioristic nature of the theories thus arrived at.

16 On the Austrian argument for value-freedom see Boettke (1998a and 1998b).

17 We think it is important to distinguish between philosophers of economics (such as Hutchinson, Blaug, Hausman, Rosenberg, etc.) and practicing economists. As has been pointed out by several scholars, most notably McCloskey, the practice of economists is quite divorced from the official rhetoric of economics. Some philosophers of economics, e.g. Rosenberg, believe this reflects the intellectual failing of the discipline of economics, while others, e.g. McCloskey, believe it demonstrates the intellectual bankruptcy of prescriptive methodology by the philosophers. If the positivist philosophers' advice cannot be followed in practice in the discipline of economics because the subject matter cannot be so treated, then the use of positivistic criteria to demarcate science from non-science is a non-starter. In the case of someone like Mises, his methodological writings have been misunderstood by friend and foe precisely because of the mischaracterization of the philosophical misconceptions that he eschewed.

18 Theories are not refuted or failed to be refuted by empirical analysis; they are either applicable or inapplicable—relevant or irrelevant to the task of empirical interpretation.

19 For a description of this movement see Boettke et al. (2003).

20 The analytic narrative we propose here is rooted in the praxeological approach that places creative, uncertain human decision-making at the center of its analysis. Although the analytic narrative advocated by Bates et al. (1998) is similar in that is seeks to employ economic theory for the purpose of historical interpretation, theirs is rooted in a purely game-theoretic approach that substitutes a world of complete and perfect information in which agent choices are deterministic for one in which actors imperfectly seek changing goals under conditions of constant change.