Praxeology and Understanding: An Analysis of the Controversy in Austrian Economics

Praxeology:
The Method of Economic Theory

The most conscientious and extensive development of the methodological doctrines of the Austrian school was undertaken by Ludwig von Mises.1 Mises viewed his efforts as an elaboration and extension of the beliefs of Carl Menger, the school’s founder. Menger’s views developed during the course of the famous Methodenstreit, which pitted him against the antitheoretical doctrines of the German historical school. Lachmann aptly notes that Mises “saw in Menger’s distinction between ‘exact laws’ and empirical regularities the pivot of Austrian methodology.”2 Mises’s particular elaboration of the Austrian method, which he called “praxeology,”3 is still regarded by many Austrian economists as the method of the Austrian school.4

In refining Menger’s ideas, Mises had to confront new opposition in the form of the doctrines of logical positivism. Mises saw in positivism the same epistemological presumptions that were at work in historicism; namely, a denial of the existence of universal and necessary laws independent of concrete historical events. To Mises this view was grounded in fallacy:

We are not capable of conceiving a world in which things would not run their course “according to eternal, pitiless, grand laws.” But this much is clear to us. In a world so constituted, human thought and “rational” human action would not be possible. And therefore in such a world there could be neither human beings nor logical thought.5

Empiricism, beginning with Hume’s skepticism and including all of its positivist variants, shares the historicist’s denial of necessity. It attempts to salvage the categories of “law” and “theory” by invoking the procedure of induction, i.e., the derivation of theory from the generalization of observed conjunctions of historical events. However, empiricism has yet to solve the “problem of induction.” It cannot, on the basis of its own epistemological tenets, offer a satisfactory basis for the assumption that its generalizations apply with equal force to future events.6 Thus empiricism does not provide a true alternative to historicism. It leaves intact the claim, disputed by Menger and by Mises, that scientific knowledge consists entirely of generalizations “drawn from past experience that could always be upset by some later experience.”7

In countering positivism Mises took refuge in Kantian epistemology and especially in Kant’s defense of the category of the synthetic a priori. What Mises regarded as crucial in Kant was, however, not Kant’s formal analysis of a priori knowledge or his epistemological idealism, but rather his conviction, contra empiricism and historicism, that reason could give universal and necessary knowledge—knowledge that was fresh and informative.8 In the sense in which he applied it in economics, Mises’s apriorism did not differ fundamentally from Menger’s Aristotelian essentialism.9

Praxeology represents an attempt to escape the nihilistic implications of both historicism and empiricism. It affirms the operation of inviolable laws within the realm of human action. It purports to establish the universal validity of these laws by deducing them from the allegedly incontestable truth that people act purposefully, the “axiom of action.” Although supposedly irrefutable, this axiom is not merely “analytic,” i.e., non-empirical or vacuous. It is based upon the reality of the pursuit of ends and the choice of means for their attainment that distinguishes all mental (and, hence, human) activity.10 Thus a priori to Mises means “independent of any particular time or place.” It does not imply independence from all “experience,” although it does denote independence from the sort of sensory experience that empiricism and positivism emphasize: “It rests on universal inner experience, and not simply on external experience, i.e., its evidence is reflective rather than physical.”11 Sense data alone, on the other hand, could not reveal to us the essential purposefulness of human actions.

Nor is experience of the empiricist variety effective in refuting theories derived praxeologically. Rather, refutation of a praxeological theory requires discovery of a fault in the chain of reasoning employed by the praxeologist. Empirical evidence does not “falsify” a theory, but rather serves to establish the appropriateness of the theory’s application to a particular, concrete event.12

To meaningfully deny the “action axiom” (i.e., the claim that people act purposefully) is difficult. Denial of the axiom’s empirical validity involves a purposeful act on the part of skeptics. It therefore confronts them with the uncomfortable choice of either conceding the issue or proclaiming that their own disagreement is purposeless. Thus any denial of the action axiom is self-contradictory.13 Yet it is neither “empty” nor “arbitrary”: it is axiomatic in the sense that distinguishes an axiom from a postulate. It is epistemologically distinct from the a priori assumptions employed in the hypothetical-deductive procedures of orthodox (neoclassical) economics.14

To be sure, Mises would have insisted that all of the lasting discoveries of the classical and neoclassical economists in the realm of pure theory were in fact results of the method described by praxeology; but this was by no means the acknowledged procedure of those schools of thought.15 Neoclassical economics regards even its most fundamental “laws” as contingent or “probable.” Indeed, many of its modern theorems are based upon patently false assumptions, some selected for their alleged predictive capacity and all subject to empirical testing and falsification. The fundamental “laws” of praxeology are, in contrast, held by it to be universally valid. They hold with “apodictic certainty.”16

Mises was heavily influenced by Max Weber as well as by Kant. It was from Weber that Mises took the notion of purposefulness which he made the starting point of praxeological analysis. Mises also adopted Weber’s emphasis upon methodological individualism and his insistence upon the necessity and possibility of an entirely value-free (wertfrei) science of human action.17 Using these notions, Mises refined Menger’s development of the subjective theory of value.

Mises’s extended application of praxeological subjectivism may be viewed as a limited version of the doctrine of epistemological subjectivism or idealism: it maintains that within the realm of human action, there are phenomena—in particular, market phenomena—that exist only by virtue of the consciousness of purposeful individuals. Thus value, wealth, profit, loss, and costs are products of human thought, having no “objective” or extensive foundation. One cannot imagine their existence or conceive their alteration, except in connection with acts of valuation and choice.18 (I shall have occasion to insist upon the consistent application of this subjective doctrine later on.) Thus to explain market phenomena in a manner consistent with its subjectivism, praxeology refers to acts of valuation and choice. However, praxeological subjectivism is also value-free or nonnormative:

[It] does not pass judgment on action, but takes it exactly as it is, and it explains market phenomena not on the basis of “right” action, but on the basis of given action. It does not seek to explain the exchange ratios that would exist on the assumption that men are governed exclusively by certain motives and that other motives do in fact govern them, have no effect. It wants to comprehend the formation of exchange ratios that actually appear in the market.19

Praxeology is also distinct from psychology. Although it explains market phenomena in terms of individual purposefulness, it does not seek to identify the motivations, thoughts, and ends that give rise to particular purposes and choices. The inability of the praxeologists, as “pure theorists,” to identify the ends of acting individuals also prevents them from constructing categories of “economic” and “noneconomic” action. Moreover, it prohibits them from passing judgment on the appropriateness of individual choices. Because praxeology does not judge actions, it is also not in a position to regard any act as “irrational.” It recognizes that all acts of choice have meaning to the individual choosers in terms of some goal or purpose, however peculiar or ephemeral, that directs their actions: “The idea of an action not in conformity with needs is absurd. As soon as one attempts to distinguish between the need and the action and makes the need the criterion for judging the action, one leaves the domain of theoretical science, with its neutrality in regard to value judgments.”20 This application of subjectivism freed praxeology from psychological or normative assumptions and made it the analysis of the “pure logic of choice.” Through it economics could become a means for the discovery of universal truths. Subjectivism was not wanted for its own sake, but as a means toward the Austrian quest for elements of necessity within the sequence of social events.

 

_____________

21See the following by Mises, Human Action, 3rd ed. (Chicago: Henry Regnery, 1966), chaps. 1-4; Epistemological Problems of Economics (New York: New York University Press, 1981); Theory and History (New Haven: Yale University Press, 1957); and The Ultimate Foundation of Economic Science (Kansas City, Kans.: Sheed Andrews and McMeel, 1978).

22LudwigM. Lachmann, “Ludwig von Mises and the Extension of Subjectivism,” in Kirzner, Method, Process, and Austrian Economics, p. 32.

23Professor Lachmann also refers to his own method as praxeology. In this study, the term praxeology is used in the narrower sense employed by Mises and Rothbard as well as by Kirzner in The Economic Point of View (Kansas City, Kans.: Sheed and Ward, 1976).

24Cf. Murray N. Rothbard, “Praxeology: The Method of Austrian Economics,” in The Foundations of Modern Austrian Economics, Edwin G. Dolan, ed. (Kansas City, Kans.: Sheed Andrews and McMeel, 1976), pp. 19-39.

25Mises, Epistemological Problems of Economics, pp. 197-98.

26On empiricism and the “problem of induction,” see Errol Harris, Hypothesis and Perception (London: George Allen & Unwin, 1970), chaps. 1-4. Cf. also David Hume’s Treatise of Humane Nature, bk. 1, pt. 3, sec. 6.

27Mises, Epistemological Problems of Economics, p. 5.

28See Brand Blanshard, Reason and Analysis (La Salle, Ill.: Open Court, 1973), p. 82.

29See Lawrence H. White, The Methodology of the Austrian School of Economics (Auburn, Ala.: Ludwig von Mises Institute, 1984), p. 7.

30William James, The Principles of Psychology (New York: Dover, 1950), p. 8.

31Murray N. Rothbard, “In Defense of ‘Extreme Apriorism’,” Southern Economic Journal 23, no. 3 (January 1957): 314-20.

32Mises, Epistemological Problems of Economics, p. 30.

33See William P. Montague, The Ways of Knowing (London: George Allen & Unwin, 1925), p. 90: “The truth of a given proposition is proved to be necessary when its contradictory implies self-contradiction.” As a general point, it should be noted that the positivist assertion that all a priori statements are either tautologous or meaningless is itself a priori and therefore, by their criteria, meaningless (since it is by no means a tautology). See Blanshard, Reason and Analysis, p. 240. The source of the argument from contradiction is Aristotle’s Metaphysics, bk. 1, chap. 3.

34Contra John B. Egger. See “The Austrian Method,” in New Directions in Austrian Economics, Louis M. Spadaro, ed. (Kansas City, Kans.: Sheed Andrews and McMeel, 1978), p. 20.

35But see Marion Bowley, Nassau Senior and Classical Economics (New York: Octagon Books, 1964), chap. 1, on Senior’s anticipation of the praxeological method.

36Richard Langlois says, regarding the notion of “apodictic certainty,” that “the post-Humean mind rebels at the hubris of such a claim” (“Austrian Economics as Affirmative Science: Comment on Rizzo” in Kirzner, Method, Process, and Austrian Economics, p. 82). According to defenders of praxeology, such “post-Humean” thinking is itself problematic. It involves a denial of necessity and causation that, taken seriously, would lead to the abandonment of all theoretical and historical pursuits. (Cf. Morris Cohen, The Meaning of Human History [La Salle, Ill.: Open Court, 1961], pp. 64, 101-02.) We shall see that the controversy in Austrian economics is a direct consequence of misguided attempts to apply such “post-Humean” thinking to the theoretical science of human action.

37See Weber’s essay “‘Objectivity’ in Social Science and Social Policy,” in Methodology of the Social Sciences, Edward Shils and H. A. Finch, ed. (Glencoe, Ill.: Free Press, 1949), pp. 49-112.

38We shall see how this view applies to the concepts of entreperneurial profit and equilibration in section “Equilibration and Coordination.”

39Mises, Epistemological Problems of Economics, pp. 180-81.

40Ibid., p. 149. See also Mises, “The Treatment of ‘Irrationality’ in the Social Sciences,” Philosophy and Phenomenological Research 4, no. 4 (June 1944): 527-53, reprinted in Money, Method, and the Market Process: Essays by Ludwig von Mises, Richard Ebeling, ed. (Boston: Kluwer Academic Publishers, 1990), pp. 16-36.

• 1See the following by Mises, Human Action, 3rd ed. (Chicago: Henry Regnery, 1966), chaps. 1-4; Epistemological Problems of Economics (New York: New York University Press, 1981); Theory and History (New Haven: Yale University Press, 1957); and The Ultimate Foundation of Economic Science (Kansas City, Kans.: Sheed Andrews and McMeel, 1978).
• 2LudwigM. Lachmann, “Ludwig von Mises and the Extension of Subjectivism,” in Kirzner, Method, Process, and Austrian Economics, p. 32.
• 3Professor Lachmann also refers to his own method as praxeology. In this study, the term praxeology is used in the narrower sense employed by Mises and Rothbard as well as by Kirzner in The Economic Point of View (Kansas City, Kans.: Sheed and Ward, 1976).
• 4Cf. Murray N. Rothbard, “Praxeology: The Method of Austrian Economics,” in The Foundations of Modern Austrian Economics, Edwin G. Dolan, ed. (Kansas City, Kans.: Sheed Andrews and McMeel, 1976), pp. 19-39.
• 5Mises, Epistemological Problems of Economics, pp. 197-98.
• 6On empiricism and the “problem of induction,” see Errol Harris, Hypothesis and Perception (London: George Allen & Unwin, 1970), chaps. 1-4. Cf. also David Hume’s Treatise of Humane Nature, bk. 1, pt. 3, sec. 6.
• 7Mises, Epistemological Problems of Economics, p. 5.
• 8See Brand Blanshard, Reason and Analysis (La Salle, Ill.: Open Court, 1973), p. 82.
• 9See Lawrence H. White, The Methodology of the Austrian School of Economics (Auburn, Ala.: Ludwig von Mises Institute, 1984), p. 7.
• 10William James, The Principles of Psychology (New York: Dover, 1950), p. 8.
• 11Murray N. Rothbard, “In Defense of ‘Extreme Apriorism’,” Southern Economic Journal 23, no. 3 (January 1957): 314-20.
• 12Mises, Epistemological Problems of Economics, p. 30.
• 13See William P. Montague, The Ways of Knowing (London: George Allen & Unwin, 1925), p. 90: “The truth of a given proposition is proved to be necessary when its contradictory implies self-contradiction.” As a general point, it should be noted that the positivist assertion that all a priori statements are either tautologous or meaningless is itself a priori and therefore, by their criteria, meaningless (since it is by no means a tautology). See Blanshard, Reason and Analysis, p. 240. The source of the argument from contradiction is Aristotle’s Metaphysics, bk. 1, chap. 3.
• 14Contra John B. Egger. See “The Austrian Method,” in New Directions in Austrian Economics, Louis M. Spadaro, ed. (Kansas City, Kans.: Sheed Andrews and McMeel, 1978), p. 20.
• 15But see Marion Bowley, Nassau Senior and Classical Economics (New York: Octagon Books, 1964), chap. 1, on Senior’s anticipation of the praxeological method.
• 16Richard Langlois says, regarding the notion of “apodictic certainty,” that “the post-Humean mind rebels at the hubris of such a claim” (“Austrian Economics as Affirmative Science: Comment on Rizzo” in Kirzner, Method, Process, and Austrian Economics, p. 82). According to defenders of praxeology, such “post-Humean” thinking is itself problematic. It involves a denial of necessity and causation that, taken seriously, would lead to the abandonment of all theoretical and historical pursuits. (Cf. Morris Cohen, The Meaning of Human History [La Salle, Ill.: Open Court, 1961], pp. 64, 101-02.) We shall see that the controversy in Austrian economics is a direct consequence of misguided attempts to apply such “post-Humean” thinking to the theoretical science of human action.
• 17See Weber’s essay “‘Objectivity’ in Social Science and Social Policy,” in Methodology of the Social Sciences, Edward Shils and H. A. Finch, ed. (Glencoe, Ill.: Free Press, 1949), pp. 49-112.
• 18We shall see how this view applies to the concepts of entreperneurial profit and equilibration in section “Equilibration and Coordination.”
• 19Mises, Epistemological Problems of Economics, pp. 180-81.
• 20Ibid., p. 149. See also Mises, “The Treatment of ‘Irrationality’ in the Social Sciences,” Philosophy and Phenomenological Research 4, no. 4 (June 1944): 527-53, reprinted in Money, Method, and the Market Process: Essays by Ludwig von Mises, Richard Ebeling, ed. (Boston: Kluwer Academic Publishers, 1990), pp. 16-36.
• 21The most conscientious and extensive development of the methodological doctrines of the Austrian school was undertaken by Ludwig von Mises. Mises viewed his efforts as an elaboration and extension of the beliefs of Carl Menger, the school’s founder. Menger’s views developed during the course of the famous Methodenstreit, which pitted him against the antitheoretical doctrines of the German historical school. Lachmann aptly notes that Mises “saw in Menger’s distinction between ‘exact laws’ and empirical regularities the pivot of Austrian methodology.” Mises’s particular elaboration of the Austrian method, which he called “praxeology,” is still regarded by many Austrian economists as the method of the Austrian school.
• 22The most conscientious and extensive development of the methodological doctrines of the Austrian school was undertaken by Ludwig von Mises. Mises viewed his efforts as an elaboration and extension of the beliefs of Carl Menger, the school’s founder. Menger’s views developed during the course of the famous Methodenstreit, which pitted him against the antitheoretical doctrines of the German historical school. Lachmann aptly notes that Mises “saw in Menger’s distinction between ‘exact laws’ and empirical regularities the pivot of Austrian methodology.” Mises’s particular elaboration of the Austrian method, which he called “praxeology,” is still regarded by many Austrian economists as the method of the Austrian school.
• 23The most conscientious and extensive development of the methodological doctrines of the Austrian school was undertaken by Ludwig von Mises. Mises viewed his efforts as an elaboration and extension of the beliefs of Carl Menger, the school’s founder. Menger’s views developed during the course of the famous Methodenstreit, which pitted him against the antitheoretical doctrines of the German historical school. Lachmann aptly notes that Mises “saw in Menger’s distinction between ‘exact laws’ and empirical regularities the pivot of Austrian methodology.” Mises’s particular elaboration of the Austrian method, which he called “praxeology,” is still regarded by many Austrian economists as the method of the Austrian school.
• 24The most conscientious and extensive development of the methodological doctrines of the Austrian school was undertaken by Ludwig von Mises. Mises viewed his efforts as an elaboration and extension of the beliefs of Carl Menger, the school’s founder. Menger’s views developed during the course of the famous Methodenstreit, which pitted him against the antitheoretical doctrines of the German historical school. Lachmann aptly notes that Mises “saw in Menger’s distinction between ‘exact laws’ and empirical regularities the pivot of Austrian methodology.” Mises’s particular elaboration of the Austrian method, which he called “praxeology,” is still regarded by many Austrian economists as the method of the Austrian school.
• 25We are not capable of conceiving a world in which things would not run their course “according to eternal, pitiless, grand laws.” But this much is clear to us. In a world so constituted, human thought and “rational” human action would not be possible. And therefore in such a world there could be neither human beings nor logical thought.
• 26Empiricism, beginning with Hume’s skepticism and including all of its positivist variants, shares the historicist’s denial of necessity. It attempts to salvage the categories of “law” and “theory” by invoking the procedure of induction, i.e., the derivation of theory from the generalization of observed conjunctions of historical events. However, empiricism has yet to solve the “problem of induction.” It cannot, on the basis of its own epistemological tenets, offer a satisfactory basis for the assumption that its generalizations apply with equal force to future events. Thus empiricism does not provide a true alternative to historicism. It leaves intact the claim, disputed by Menger and by Mises, that scientific knowledge consists entirely of generalizations “drawn from past experience that could always be upset by some later experience.”
• 27Empiricism, beginning with Hume’s skepticism and including all of its positivist variants, shares the historicist’s denial of necessity. It attempts to salvage the categories of “law” and “theory” by invoking the procedure of induction, i.e., the derivation of theory from the generalization of observed conjunctions of historical events. However, empiricism has yet to solve the “problem of induction.” It cannot, on the basis of its own epistemological tenets, offer a satisfactory basis for the assumption that its generalizations apply with equal force to future events. Thus empiricism does not provide a true alternative to historicism. It leaves intact the claim, disputed by Menger and by Mises, that scientific knowledge consists entirely of generalizations “drawn from past experience that could always be upset by some later experience.”
• 28In countering positivism Mises took refuge in Kantian epistemology and especially in Kant’s defense of the category of the synthetic a priori. What Mises regarded as crucial in Kant was, however, not Kant’s formal analysis of a priori knowledge or his epistemological idealism, but rather his conviction, contra empiricism and historicism, that reason could give universal and necessary knowledge—knowledge that was fresh and informative. In the sense in which he applied it in economics, Mises’s apriorism did not differ fundamentally from Menger’s Aristotelian essentialism.
• 29In countering positivism Mises took refuge in Kantian epistemology and especially in Kant’s defense of the category of the synthetic a priori. What Mises regarded as crucial in Kant was, however, not Kant’s formal analysis of a priori knowledge or his epistemological idealism, but rather his conviction, contra empiricism and historicism, that reason could give universal and necessary knowledge—knowledge that was fresh and informative. In the sense in which he applied it in economics, Mises’s apriorism did not differ fundamentally from Menger’s Aristotelian essentialism.
• 30Praxeology represents an attempt to escape the nihilistic implications of both historicism and empiricism. It affirms the operation of inviolable laws within the realm of human action. It purports to establish the universal validity of these laws by deducing them from the allegedly incontestable truth that people act purposefully, the “axiom of action.” Although supposedly irrefutable, this axiom is not merely “analytic,” i.e., non-empirical or vacuous. It is based upon the reality of the pursuit of ends and the choice of means for their attainment that distinguishes all mental (and, hence, human) activity. Thus a priori to Mises means “independent of any particular time or place.” It does not imply independence from all “experience,” although it does denote independence from the sort of sensory experience that empiricism and positivism emphasize: “It rests on universal inner experience, and not simply on external experience, i.e., its evidence is reflective rather than physical.” Sense data alone, on the other hand, could not reveal to us the essential purposefulness of human actions.
• 31Praxeology represents an attempt to escape the nihilistic implications of both historicism and empiricism. It affirms the operation of inviolable laws within the realm of human action. It purports to establish the universal validity of these laws by deducing them from the allegedly incontestable truth that people act purposefully, the “axiom of action.” Although supposedly irrefutable, this axiom is not merely “analytic,” i.e., non-empirical or vacuous. It is based upon the reality of the pursuit of ends and the choice of means for their attainment that distinguishes all mental (and, hence, human) activity. Thus a priori to Mises means “independent of any particular time or place.” It does not imply independence from all “experience,” although it does denote independence from the sort of sensory experience that empiricism and positivism emphasize: “It rests on universal inner experience, and not simply on external experience, i.e., its evidence is reflective rather than physical.” Sense data alone, on the other hand, could not reveal to us the essential purposefulness of human actions.
• 32Nor is experience of the empiricist variety effective in refuting theories derived praxeologically. Rather, refutation of a praxeological theory requires discovery of a fault in the chain of reasoning employed by the praxeologist. Empirical evidence does not “falsify” a theory, but rather serves to establish the appropriateness of the theory’s application to a particular, concrete event.
• 33To meaningfully deny the “action axiom” (i.e., the claim that people act purposefully) is difficult. Denial of the axiom’s empirical validity involves a purposeful act on the part of skeptics. It therefore confronts them with the uncomfortable choice of either conceding the issue or proclaiming that their own disagreement is purposeless. Thus any denial of the action axiom is self-contradictory. Yet it is neither “empty” nor “arbitrary”: it is axiomatic in the sense that distinguishes an axiom from a postulate. It is epistemologically distinct from the a priori assumptions employed in the hypothetical-deductive procedures of orthodox (neoclassical) economics.
• 34To meaningfully deny the “action axiom” (i.e., the claim that people act purposefully) is difficult. Denial of the axiom’s empirical validity involves a purposeful act on the part of skeptics. It therefore confronts them with the uncomfortable choice of either conceding the issue or proclaiming that their own disagreement is purposeless. Thus any denial of the action axiom is self-contradictory. Yet it is neither “empty” nor “arbitrary”: it is axiomatic in the sense that distinguishes an axiom from a postulate. It is epistemologically distinct from the a priori assumptions employed in the hypothetical-deductive procedures of orthodox (neoclassical) economics.
• 35To be sure, Mises would have insisted that all of the lasting discoveries of the classical and neoclassical economists in the realm of pure theory were in fact results of the method described by praxeology; but this was by no means the acknowledged procedure of those schools of thought. Neoclassical economics regards even its most fundamental “laws” as contingent or “probable.” Indeed, many of its modern theorems are based upon patently false assumptions, some selected for their alleged predictive capacity and all subject to empirical testing and falsification. The fundamental “laws” of praxeology are, in contrast, held by it to be universally valid. They hold with “apodictic certainty.”
• 36To be sure, Mises would have insisted that all of the lasting discoveries of the classical and neoclassical economists in the realm of pure theory were in fact results of the method described by praxeology; but this was by no means the acknowledged procedure of those schools of thought. Neoclassical economics regards even its most fundamental “laws” as contingent or “probable.” Indeed, many of its modern theorems are based upon patently false assumptions, some selected for their alleged predictive capacity and all subject to empirical testing and falsification. The fundamental “laws” of praxeology are, in contrast, held by it to be universally valid. They hold with “apodictic certainty.”
• 37Mises was heavily influenced by Max Weber as well as by Kant. It was from Weber that Mises took the notion of purposefulness which he made the starting point of praxeological analysis. Mises also adopted Weber’s emphasis upon methodological individualism and his insistence upon the necessity and possibility of an entirely value-free (wertfrei) science of human action. Using these notions, Mises refined Menger’s development of the subjective theory of value.
• 38Mises’s extended application of praxeological subjectivism may be viewed as a limited version of the doctrine of epistemological subjectivism or idealism: it maintains that within the realm of human action, there are phenomena—in particular, market phenomena—that exist only by virtue of the consciousness of purposeful individuals. Thus value, wealth, profit, loss, and costs are products of human thought, having no “objective” or extensive foundation. One cannot imagine their existence or conceive their alteration, except in connection with acts of valuation and choice. (I shall have occasion to insist upon the consistent application of this subjective doctrine later on.) Thus to explain market phenomena in a manner consistent with its subjectivism, praxeology refers to acts of valuation and choice. However, praxeological subjectivism is also value-free or nonnormative:
• 39[It] does not pass judgment on action, but takes it exactly as it is, and it explains market phenomena not on the basis of “right” action, but on the basis of given action. It does not seek to explain the exchange ratios that would exist on the assumption that men are governed exclusively by certain motives and that other motives do in fact govern them, have no effect. It wants to comprehend the formation of exchange ratios that actually appear in the market.
• 40Praxeology is also distinct from psychology. Although it explains market phenomena in terms of individual purposefulness, it does not seek to identify the motivations, thoughts, and ends that give rise to particular purposes and choices. The inability of the praxeologists, as “pure theorists,” to identify the ends of acting individuals also prevents them from constructing categories of “economic” and “noneconomic” action. Moreover, it prohibits them from passing judgment on the appropriateness of individual choices. Because praxeology does not judge actions, it is also not in a position to regard any act as “irrational.” It recognizes that all acts of choice have meaning to the individual choosers in terms of some goal or purpose, however peculiar or ephemeral, that directs their actions: “The idea of an action not in conformity with needs is absurd. As soon as one attempts to distinguish between the need and the action and makes the need the criterion for judging the action, one leaves the domain of theoretical science, with its neutrality in regard to value judgments.” This application of subjectivism freed praxeology from psychological or normative assumptions and made it the analysis of the “pure logic of choice.” Through it economics could become a means for the discovery of universal truths. Subjectivism was not wanted for its own sake, but as a means toward the Austrian quest for elements of necessity within the sequence of social events.