[This article is a section taken out of the longer essay “Do You Even Prax, Bro?” Over the span of the following days the corresponding sections will be published until finally the essay is published in full along with the missing  and additional sections added since first publication]

 

 

When it comes to economics, you could say that Austrians (or Misesians) are outnumbered in how we approach economics. Empiricial observation is seen to be the norm, well, because science. Over the next couple days I will be arguing why the mainstream way (or empirical approach) is incorrect. Before we do that, I will start by going over what makes the Austrian approach unique and, well, logical.

 

 

“A priori” is nothing special to economics.  It merely refers to knowledge available without or “prior to” experience, from pure reason, the opposite of a posteriori.  The relevance of this to Austrian Economics is that the basic principle the theory is founded on is human action, the action axiom, or more simply put that “man acts”.  Austrian economics start with “man acts” and deduces logically from there.  Austrians observe that you can’t deny that assertion without committing a performative contradiction, and the axiom is thus proved.  From there, we can deduce subjective value theory, comparative advantage, diminishing marginal utility, and eventually Austrian business cycle theory.  If you can’t refute the action axiom, and you literally can’t, then to take down an Austrian conclusion you have to find the flaw in its deductive logic, which overlooks a crucial point: There is not, even in principle, an empirical observation which could refute Austrian theory, because it doesn’t generate predictions that are falsifiable through observation.

 

Thus, “man acts” is at the top level – which is not deduced, but is proved via the performative contradiction of denying it.  The Austrian definition of action – deliberate action – implies purpose, a goal, and an action being a means to that end.  We deduce from this that acting man employs means (via action) to achieve ends (the aim of his action.)  From there we can deduce that he will only act if there exists in his mind a future more satisfactory to him than the future he believes will come about without action.  Otherwise he wouldn’t act.  Only by acting can he bring about that future.  From there we say that given many possible ways to improve his situation, he will act to satisfy the most urgently felt uneasiness; from there we can deduce the law of diminishing marginal utility, subjective value, and so on.

 

That’s a priori knowledge, because we can know it without experience by virtue of the impossibility of denying it without committing a performative contradiction.  If sound principles of logic are used to deduce further truths from this irrefutable action axiom, those truths will also be certain.

 

Austrians don’t even have to know that man exists prior to proving that “man acts”. Any real or hypothetical entity capable of denying that he/she/it acts, is proven to be an actor before existence is even an issue. If a Martian could deny that it acts, it’s an actor. If a 23rd century AI did it, same thing. Everything deduced from that axiom, which is to say the entire body of Austrian economic thought, is valid for any real or hypothetical race of actors. The fact that man exists and is a race of actors only makes the theory useful. If no actors existed, it would still be correct, just not very useful.
By analogy, triangles don’t even exist in the real world, and trigonometry is correct. If they did exist, or if we apply them to real-world approximations of triangles, as we do, no such observation could ever falsify the propositions of trigonometry, which are proved without ever having a triangle on hand to poke at.

 

Some individuals may reject this concept and “a priori” all together because Austrians don’t go out and test it empirically or utilize other approaches such as the scientific method.  We will address empirical observations in the next section but first, fortunately, that’s not even a comprehensible statement in the first place because testing means experience and experience means thinking or computing.  Therefore, it’s being tested the minute it’s being objected to.  It’s typically an expressivist complaint akin to “I don’t like that”.  On top of that, Austrians are criticized that they use axioms in place of actual observable data, or as a substitute of empirical research. That their methodology is “pre-enlightenment”. Eg, pre-Newtonian and pre-Baconian insofar as considering deduction itself sufficient to prove an axiom, or any other logical argument as true.

 

First of all, we must remember that a method like the scientifc method is only useful when analyzing data acquired through the senses.  The truth of the action axiom is evident upon internal reflection, not from observation.  If I attempt to refute it, I demonstrate its truth because, within my own thoughts, my very attempt to refute it is an action.  This knowledge of action is therefore certain, not tentative like empirical conclusions in the physical sciences.  Simply put, those methods, such as the scientific method, applies to mindless things.  People have minds and can learn and so no two situations are every truly alike.  There are no constants in human action.  Just consider the difference between the scientist applying the scientific method and the subject being studied.  The scientist observes, interprets, makes adjustments and repeats or even abandons study.  “Man acts” is not a hypothetical statement, and neither are statements derived logically from it.  You couldn’t, even if you wanted to, construct an experiment to test the truth of if, any more than you could with “no two straight lines can enclose a space.”

 

Second of all, even if something like “pre-Newtonian” was a valid criticism, none of that is true. In the 1920s when Mises first started publishing these things, the a priori and deductive methodology was entirely orthodox in economics. This was certainly post-Newton. So, consider this. This is outright suggesting (if not outright saying) that there can be no such thing as a priori knowledge, and this is Austrians opponents criticism. But consider that statement – are they saying they have empirically observed the absence of a priori knowledge in the universe, or is it a priori true that a priori knowledge cannot exist?

 

In arguing this we turn to Mises, who states on the science of economics:

“Its statements and propositions are not derived from experience.  They are, like those of logic and mathematics, a priori.  They are not subject to verification and falsification on the ground of experience and facts.  They are both logically and temporally antecedent to any comprehension of historical facts.  They are a necessary requirement of any intellectual grasp of historical events.”[1]

 

There is knowledge we can know to be true just by thinking about it, and it is apodictically true.  This is what the entire basis of Austrian economics, the fact that man acts.  You don’t need to test this continually, it’s true no matter what location no matter what time, human action is grasped a priori, and from there, being confined to the laws of logic, we deduced the entire system of economics we call Austrian Economics.

 

 

This leads to another contention on praxeology’s use of a priori, that it is “pseudo-scientific”, since it does not generate predictions that are falsifiable, as mentioned above. To address this, it depends on how you define “science”, but if math or logic satisfy your definition,then the answer is yes, so must praxeology.

 

Psychology is a soft science in that you can’t establish direct and inviolable causal relationships among phenomena. You can’t say that if I experienced A in my childhood, then when presented with situation B, I will definitely take action C. However, you can formulate a hypothesis that A promotes C and make observations or conduct experiments to test that hypothesis.

 

Physics is generally considered the king of the “hard sciences” in that there are direct and inviolable causal relationships in the physical universe, such that if you see any deviation from your expectation, you know your expectation – your theory – was just plain wrong. But it’s entirely empirical in that the whole body of theoretical knowledge in that field started with observations, which yielded hypotheses, which were tested and became theories (or didn’t) and new observations are continually used as tests of those theories. As we do that, the certainty about a given theory’s correctness either further approaches 1 (without ever, ever hitting 1) or takes a hit if the observation falsifies the theory.

 

Praxeology is altogether different. If man acts then [the whole body of Austrian thought unless a logical error has been committed]. This practice doesn’t yield falsifiable predictions. Its statements are not hypothetical and can’t be empirically tested, any more than “no two straight lines can ever enclose a space” can be. They are statements like “other things being equal, an increase in X will bring about an increase in Y” but other things are never equal, or even if they are we can never discover whether they are. Or, another way to say the same thing, “Given an increase in X, Y will be higher than it would otherwise have been” which again is untestable because we don’t know what Y would have been. The defense of these statements is always pure deductive logic from the (literally irrefutable) action axiom. In this way it more closely resembles mathematics than psychology or physics.  Falsification is non-absolute – it doesn’t disprove the proposition, it only shows it to be less likely than previously thought. Austrian propositions, if they’re wrong, can be disproven by discovering the flaw in the logic.  Logic is not always correct, but if it is in error, then it can be logically refuted. Empirical “evidence” that is simply manipulated, made-up statistical measures that correlate for some time and then don’t anymore (but we’ll not look at that part, because reasons) are not knowledge of any form.

 

Further, the logic is still just as valid when analyzing things ceteris paribus. If, say, demand increases, then price rises (ceteris paribus) is ironclad – but it doesn’t explain every factor that might go on. For that, you need historical analysis, but the theory is still sound.

 

Think of it as each ceteris paribus condition being a “force” – gravity is bound to follow an equation, but electricity may also be acting on an object. And so forth.

 

Now, as you may be reading this, you may not be wholly convinced of the legitimacy of a priori, you may want an explanation why a performative contradiction is as powerful as we say it is, or maybe simply put some more logical steps that tie the performative contradiction to the specific claim being made.  In response to this, the presuppositions can be deconstructed and you will find they either:

 

(1)   Aren’t working with material axioms, or

(2)   Aren’t presupposing any “description of a world in which categories of action assume concrete meaning”.  Working with material axioms [2] also means not assuming fallacious things like predictive theories of consciousness that rule out subjective value theory.  Mises explained the process as, “He who wants to attack a praxeological theorem has to trace it back, step by step, until he reaches a point in which, in the chain of reasoning that resulted in the theorem concerned, a logical error can be unmasked.  Nevertheless, if this regressive process of deduction ends at the category of action without having discovered a vicious link in the chain of reasoning, the theorem is fully confirmed.  Those positivists who reject such a theorem without having subjected it to this examination are no less foolish than those seventeenth-century astronomers were who refused to look through the telescope that would have shown them that Galileo was right and they were wrong.”[3]

 

Now, despite the above explanations and defense of a priori reasoning there is still some doubt, some further skepticism, of a priori reasoning being legitimate or useful under the notion that when an Austrian encounters an observation that contradicts their theory – where a “scientist” will revisit his theory – an Austrian has no such obligation and tosses it out as a result of Austrian epistemology. To address that, I would need to ask what an individual would replace it with because it is hard to fathom one science that doesn’t use it.  As Alfred Tarski states when explaining model theory – the foundation of all scientific theories – as a priori:

“Every scientific theory is a system of sentences which are accepted as true and which may be called laws or asserted statements (sometimes one says, for short, simply statements).  […] these statements follow one another in a definite order, and in accordance with certain principles […]; in view of these principles, the statements are generally accompanied by arguments whose purpose is to demonstrate their truth.  Arguments of this kind are referred to as proofs, and the statements established by them are called theorems.  Among the terms and symbols occurring in […] theorems and proofs, we distinguish constants and variables”. [4]

 

This means that if you’re going to challenge the legitimacy of a priori reasoning (whether in economics or elsewhere) then to be consistent you should challenge it everywhere.  Everywhere happens to be every science.  There is no reason to single out economic theory’s use of it.

 

Let’s consider the alternate approach – which is more or less a deterministic model, since heuristical gambles aren’t typically sufficient solutions.
With deterministic models, there are two ways to create them.  The first way is for a derministic model to not be created but to say it is one a model such as this might make guesses that are accurate but could (or rather, would) unalterably fail, would need updating constantly (and thus be heuristical at best), or over time unsuccessfully predict with any type of useful rate of success. The alternative is to plan the future actions of a person who doesn’t know the future.

“What, then, does Barry mean (and others who make similar statements), when the order generated by market interaction is made comparable to that order which might emerge from an omniscient, designing single mind?  If pushed on this question, economists would say that if the designer could somehow know the utility functions of all participants, along with the constraints, such a mind could, by fiat, duplicate precisely the results that would emerge from the process of market adjustment.  By implication, individuals are presumed to carry around with them fully determined utility functions, and, in the market, they act always to maximize utilities subject to the constraints they confront.  As I have noted elsewhere, however, in this presumed setting, there is no genuine choice behavior on the part of anyone.  In this model of market process, the relative efficiency of institutional arrangements allowing for spontaneous adjustment stems solely from the informational aspects.

This emphasis is misleading.  Individuals do not act as to maximize utilities described in independently existing functions.  They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post (after the choices), in terms of “as if” functions that are maximized.  However, these “as if” functions are, themselves, generated in the choosing process, not separately from such process.  If viewed in this perspective, there is no means by which even the most idealized omniscient designer could duplicate the results of voluntary interchange.  The potential participants do not know until they enter the process what their own choices will be.  From this it follows that it is logically impossible for an omniscient designer to know, unless, of course, we are to preclude individual freedom of will.” -James Buchanan[5]

 

Nonetheless, to make the claim that Austrians would dismiss an observation that contradicts their theory as meaningless due to epistemology simply misunderstands the goal and mode of a priori reasoning.  As explained above, a priori reasoning exists in all sciences, however that is not the point.

 

Austrians do not reject observations merely because of it conflicting with reasoning based on a priori foundations.  No.  Such an obvious inconsistency between reality (observation) and something deduced may actually result in an Austrian economist to revisit the chain of deductions from the a priori foundation to the contradiction in an effort to reveal any flaws of reasoning.

 

However, again, that still is not the point.

 

The point is that a theory has observations interpreted into them at all times.  In addition, all economists – not just Austrians – do this.  Nonetheless, a certain amount of economists that are model-based have the additional route of needing their models “tweaked” when encountered with certain galling observations.  This tweaking involves a different path to objecting assumptions, chains of deductions, as well as even going as far as to interpret the observation in a context of innumerous perplexing variables.

 

Yet, if your model must be “tweaked”, even when you encounter an overwhelming margin of interpretation, it goes to show that there is something extremely faulty with the overall groundwork.

 

Then you have the entire class of economic theories that can hold up to any scrutiny to empirical challenges endlessly.  Economists frequently interpret observations in totally conflicting manners, where each theory cannot both be true at once.  However, there is no solution to this conflict for each theory to find a place and a meaning for the observation that is entirely consistent with the theory.

 

Nevertheless, it must be addressed that each such theory does include some base assumptions upon which the whole rests.  It does grow into a real problem if those assumptions can’t be established a priori.  The best that could be done in the case where no theory has any assumptions that can be secured a priori, would be to hypothesize at the assumptions, examining which ones would be most likely by applying such things as Occam’s Razor.  Yet, what one should not attempt is to take the assumptions for granted, nor fail to acknowledge that those assumptions that are unidentified are actually guiding interpretations of observations through a theory bound to those assumptions.  Whether the base assumptions are acknowledged or not, the theory is guided by base assumptions, not by observations.

 

Having a base assumption that is established a priori is something Austrians do, and this is not a great weakness but a significant strength.

 

“Man acts” is the a priori notion that is encompassed in Austrian economics.  Yet, “man acts” is the only proposition a priori that needs to be established as being a priori.  For economics, to establish that “man acts” as a valid proposition, then the rest follows suit.

 

If it does not, then the flaw in reasoning by which the theory is deduced from the assumption “man acts” needs to be revealed. If a priori is false, it can be demonstrated by attacking the logic involved in the derivation. Certainly, thereis logical derivation. If it is wrong, then one can explain how it is wrong. Saying “there is no proof your logic is correct” denies the use of logic in deriving true conclusions. Not only is this foolish on the ground that this is precisely what logic is for, it is foolish because theories cannot be derived from random statistical collections in the first place, but always inform the collection of statistics and data. If one can reveal such an error in a common Austrian economic theory and you can handle the flaw in logical tenacity, then Austrians would love nothing more than to hear it. Thus, the criticism is all moot if you can’t spot a flaw in the logic. The action axiom itself irrefutably establishes that any two people discussing it are accurately described by it. Anything which can be logically deduced from it is, by the law of non-contradiction, also applicable to us, no matter how much you dislike that approach to the discovery of knowledge.

 

Keep in mind however, Austrians will be skeptical, since the theories and chains of reasoning have and continue to be gone over constantly.  It is more likely that an Austrian economist can point out an error in an argument that you believed had a flaw in a certain Austrian theory than vice versa.  However, this does not mean that one shouldn’t make an attempt.

 

If an individual merely wants to make the objection, “man doesn’t act”, then there is little point in discussing economics.

 

 

Jeff Peterson II

 

We the Individuals

 

 

 

 

 

[1] Generally, material axioms presuppose a correspondence with reality and leave open the possibility of later disproof or revision.  Euclid thought his geometry corresponded to reality.  Other words for ‘material’: fallible, concrete, Aristotelian.  This is basically what Hoppe means when he states, “not in the sense that […] one would have to be immediately aware of them or that their truth depends on a psychological feeling of conviction”, and, “[…]there are only bodily movements to be observed but no such thing as actions”. Material axioms have to be constructed from ““a description of a world in which categories of action assume concrete meaning”. [Economic Science and the Austrian Method by Hans-Hermann Hoppe].

[2] Human Action, Chapter II. The Epistemological Problems of the Sciences of Human Action, 1. Praxeology and History

[3] The Ultimate Foundation of Economic Science, Chapter 4 Certainty and Uncertainty, 9. The Examination of Praxeological Theorems

[4] Introduction to Logic and to the Methodology of the Deductive Sciences by Alfred Tarski, Section I On the Use of Variables, Chapter 1 Constants and Variables.

[5] James M. Buchanan, “Order Defined in the Process of its Emergence”