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Appendix A: Praxeology and Economics
This chapter has been an exposition of part of praxeological analysis—the analysis that forms the body of economic theory. This analysis takes as its fundamental premise the existence of human action. Once it is demonstrated that human action is a necessary attribute of the existence of human beings, the rest of praxeology (and its subdivision, economic theory) consists of the elaboration of the logical implications of the concept of action. Economic analysis is of the form:
(1) Assert A—action axiom.
(2) If A, then B; if B, then C; if C, then D, etc.—by rules of logic.
(3) Therefore, we assert (the truth of) B, C, D, etc.
It is important to realize that economics does not propound any laws about the content of man's ends. The examples that we have given, such as ham sandwich, berries, etc., are simply illustrative instances, and are not meant to assert anything about the content of a man's goals at any given time. The concept of action involves the use of scarce means for satisfying the most urgent wants at some point in the future, and the truths of economic theory involve the formal relations between ends and means, and not their specific contents. A man's ends may be “egoistic” or “altruistic,” “refined” or “vulgar.” They may emphasize the enjoyment of “material goods” and comforts, or they may stress the ascetic life. Economics is not concerned with their content, and its laws apply regardless of the nature of these ends.
Praxeology, therefore, differs from psychology or from the philosophy of ethics. Since all these disciplines deal with the subjective decisions of individual human minds, many observers have believed that they are fundamentally identical. This is not the case at all. Psychology and ethics deal with the content of human ends; they ask, why does the man choose such and such ends, or what ends should men value? Praxeology and economics deal with any given ends and with the formal implications of the fact that men have ends and employ means to attain them. Praxeology and economics are therefore disciplines separate and distinct from the others.
Thus, all explanations of the law of marginal utility on psychological or physiological grounds are erroneous. For example, many writers have based the law of marginal utility on an alleged “law of the satiation of wants,” according to which a man can eat so many scoops of ice cream at one time, etc., and then becomes satiated. Whether or not this is true in psychology is completely irrelevant to economics. These writers erroneously concluded that, at the beginning of the supply, a second unit may be more enjoyable than the first, and therefore that marginal utility may increase at first before declining. This is completely fallacious. The law of marginal utility depends on no physiological or psychological assumptions but is based on the praxeological truth that the first unit of a good will be used to satisfy the most urgent want, the second unit the next most urgent want, etc. It must be remembered that these “units” must be of equal potential serviceability.
For example, it is erroneous to argue as follows: Eggs are the good in question. It is possible that a man needs four eggs to bake a cake. In that case, the second egg may be used for a less urgent use than the first egg, and the third egg for a less urgent use than the second. However, since the fourth egg allows a cake to be produced that would not otherwise be available, the marginal utility of the fourth egg is greater than that of the third egg.
This argument neglects the fact that a “good” is not the physical material, but any material whatever of which the units will constitute an equally serviceable supply. Since the fourth egg is not equally serviceable and interchangeable with the first egg, the two eggs are not units of the same supply, and therefore the law of marginal utility does not apply to this case at all. To treat eggs in this case as homogeneous units of one good, it would be necessary to consider each set of four eggs as a unit.
To sum up the relationship and the distinctions between praxeology and each of the other disciplines, we may describe them as follows:
- Why man chooses various ends: psychology.
- What men's ends should be: philosophy of ethics. also: philosophy of aesthetics.
How to use means to arrive at ends: technology.
- What man's ends are and have been, and how man has used means in order to attain them: history.
The formal implications of the fact that men use means to attain various chosen ends: praxeology.
What is the relationship between praxeology and economic analysis? Economics is a subdivision of praxeology—so far the only fully elaborated subdivision. With praxeology as the general, formal theory of human action, economics includes the analysis of the action of an isolated individual (Crusoe economics) and, especially elaborate, the analysis of interpersonal exchange (catallactics). The rest of praxeology is an unexplored area. Attempts have been made to formulate a logical theory of war and violent action, and violence in the form of government has been treated by political philosophy and by praxeology in tracing the effects of violent intervention in the free market. A theory of games has been elaborated, and interesting beginnings have been made in a logical analysis of voting.
The suggestion has been made that, since praxeology and economics are logical chains of reasoning based on a few universally known premises, to be really scientific it should be elaborated according to the symbolic notations of mathematical logic.44 This represents a curious misconception of the role of mathematical logic, or “logistics.” In the first place, it is the great quality of verbal propositions that each one is meaningful. On the other hand, algebraic and logical symbols, as used in logistics, are not in themselves meaningful. Praxeology asserts the action axiom as true, and from this (together with a few empirical axioms—such as the existence of a variety of resources and individuals) are deduced, by the rules of logical inference, all the propositions of economics, each one of which is verbal and meaningful. If the logistic array of symbols were used, each proposition would not be meaningful. Logistics, therefore, is far more suited to the physical sciences, where, in contrast to the science of human action, the conclusions rather than the axioms are known. In the physical sciences, the premises are only hypothetical, and logical deductions are made from them. In these cases, there is no purpose in having meaningful propositions at each step of the way, and therefore symbolic and mathematical language is more useful.
Simply to develop economics verbally, then to translate into logistic symbols, and finally to retranslate the propositions back into English, makes no sense and violates the fundamental scientific principle of Occam's razor, which calls for the greatest possible simplicity in science and the avoidance of unnecessary multiplication of entities or processes.
Contrary to what might be believed, the use of verbal logic is not inferior to logistics. On the contrary, the latter is merely an auxiliary device based on the former. For formal logic deals with the necessary and fundamental laws of thought, which must be verbally expressed, and logistics is only a symbolic system that uses this formal verbal logic as its foundation. Therefore, praxeology and economics need not be apologetic in the slightest for the use of verbal logic—the fundamental basis of symbolic logic, and meaningful at each step of the route.45
- 44. Cf. G.J. Schuller, “Rejoinder,” American Economic Review, March, 1951, p. 188. For a reply, see Murray N. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics” in Mary Sennholz, ed. On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises (Princeton, N.J.: D. Van Nostrand, 1956), p. 227. Also see Boris Ischboldin, “A Critique of Econometrics,” Review of Social Economy, September, 1960, pp. 110–27; and Vladimir Niksa, “The Role of Quantitative Thinking in Modern Economic Theory,” Review of Social Economy, September, 1959, pp. 151–73.
- 45. Cf. René Poirier, “Sur Logique” in André Lalande, Vocabulaire technique et critique de la philosophie (Paris: Presses Universitaires de France, 1951), pp. 574–75.