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

From Mises to Lachmann:
Austrian Revisionism

Hayek

A break from the praxeological approach came with Friedrich Hayek’s 1937 essay “Economics and Knowledge.”1 The intention of this essay was ambiguous. Superficially, it appeared to be a critique of neoclassical equilibrium analysis. But it also involved a subtle rejection of the methodological presuppositions of praxeology.2

Though admitting that Austrian economics did possess a “formal” component (which Hayek called the “pure logic of choice”), Hayek regarded the meaningfulness and necessary truth of this formal component to be severely circumscribed. Indeed, he viewed praxeology as only contingently applicable to catallactics, i.e., to the elucidation of market phenomena. As far as the social world was concerned, the pure logic of choice was merely a collection of empirically empty tautologies.3 Praxeology, in seeking “apodictically certain” conclusions, had so drained itself of content as to become useless as an independent means for deriving useful truths about reality. Far from relying exclusively upon the fact of purposefulness, applications of praxeology to catallactic phenomena involve unacknowledged auxiliary assumptions about the dissemination and use of knowledge by market participants; assumptions “about causation in the real world.”4 This is true especially of its conclusions that rely upon the operation of competitive forces with a “tendency toward equilibrium” as their driving force. And where assumptions about causation are involved, these are subject to falsification.5

Hayek’s allusions to falsification are a special source of ambiguity, for one is never entirely sure whether the implied empirical analysis is supposed to make use of the crude sense of data of positivism or of “common sense” evaluation founded on ideal-types. In a footnote near the end of his essay, Hayek leads us to believe that, despite his references to Popper and to falsification, he in fact has the “common sense” procedure in mind.6

The thrust of Hayek’s essay is, however, unaffected by the specific type of empirical evidence it recommends. It claims that even pure economics, insofar as it concerns market phenomena and not merely the actions of isolated individuals, must be partly an empirical or psychological science rather than a logical-deductive one. It must investigate the meanings attached by individual actors to their situation, and it must examine the particular motivations and stimuli that give rise to their choices. It must become a science, not just of action, but of people’s reactions, and of how these reactions may reflect the use and dissemination of knowledge. Only in this way can economics solve the riddle as to why acting people “should be right.”7 And until it solves this riddle, it cannot say anything certain about market processes.

To put the challenge differently, economic science must establish and examine the mechanisms of social causation. It must show that actors in the social world may become reasonably informed of the valuations of other individuals so that they may direct their actions well enough to achieve desired results. Unless this is possible, the formal conclusions of economics, and of praxeology in particular, remain purely hypothetical.8

It shall be argued, contra Hayek, that the “pure logic of choice” has a great deal to say about the prerequisites for successful action—notwithstanding our ignorance as to the mechanisms of social causation. Moreover, although we shall see that the absence of such causation would have serious implications, it will be argued that Hayek’s suggestion that praxeological conclusions need the support of an explanation of social causation (that is, of why it should be that people are ever right) is not very good advice after all.

Shackle

While Hayek criticized “formal” theory for disregarding the role of learning, George Shackle chastised it for its neglect of time. It is important to understand that these criticisms are not the same, although the latter may be considered an extension of the implications of the former. Hayek’s critique was largely concerned with the diffusion by the market of knowledge regarding the effects of past actions, i.e., its ability to reveal the impact and success of entrepreneurship. Shackle’s criticism is much more radical. He concerns himself specifically with the inability of the market to harness and disperse knowledge about the future. Thus, he focuses on the failure of formal theory to address the problem of expectations. Moreover, while Hayek suggested the need for economics to explain the possibility of successful (or what we shall later call “coordinating”) market actions, he never doubted that the prevalence of such successful action was a fact. Shackle, in contrast, has taken just the opposite view.

It is necessary to distinguish two parts of Shackle’s critique. First, in what shall be referred to as his “weak thesis,” Shackle claims that economic theory neglects the existence of uncertainty. Second, in his “strong thesis,” he argues that economic theory cannot deal with the implications of a “kaleidic” future. Only the strong thesis represents a potential criticism of praxeology. It is this thesis that, one may infer, Ludwig M. Lachmann (whose views will be discussed shortly) draws upon in citing the need for praxeology to account for the problem of “divergent expectations.”

In expounding his weak thesis Shackle erects a dichotomy that entirely overlooks the praxeological approach. To Shackle, who implicitly equates “formal” theory with neoclassical theory, the only conceivable basis for pure theory is one that identifies rational action with action that is “fully informed.”9 Thus formal theory and its body of deduced relationships are relevant, as he sees it, only to the general equilibrium schema which necessarily excludes the passage of time. Shackle therefore presents the following dilemma: “If there is fundamental conflict between the appeal to rationality and the consideration of the consequences of time as it imprisons us in actuality, the theoretician is confronted with a stark choice. He can reject rationality or time.”10 Clearly, this distressing choice results from Shackle’s identification of “rationality” with its neoclassical interpretation according to which rational action is action that achieves results more or less identical to those prescribed by the allegedly objective conditions of general equilibrium. Praxeology is entirely unaccounted for in this view of things, for it is at once “formal,” giving laws and theorems valid with logical necessity, yet fully applicable to a world of time and its corollary, uncertainty. Indeed, it is only in a world of time and uncertainty that action, the starting point of praxeological analysis, would be possible at all. In a world of perfect certainty and knowledge, individual “actions” would be entirely predetermined. They would be automatic, not purposeful.

Praxeology does not postulate any rigid determinism insofar as concrete acts of choice are concerned. The soundness of its deductions is not demonstrated by appeal to forecasting power or its counterpart, empirical falsifiability. Purposeful action involves an ever-present logical pattern which praxeology seeks to discover through deduction while avoiding the suggestion that future concrete choices and events in any scientific sense be knowable and predictable.

Shackle, on the other hand, cannot conceive of a “pure logic of choice,” i.e., of praxeology. He equates formal with “static,” unanticipated change with “irrationality.” His weak thesis entirely misses the mark insofar as praxeology is concerned. Shackle does not distinguish between neoclassical value theory (based upon the assumption of perfect knowledge and the analysis of a fully determined general equilibrium system of means and ends) and praxeology (which is based upon an analysis of the implications of action and necessarily presumes the existence of uncertainty respecting means and ends). Praxeology does not make use of the neoclassical construct that Shackle calls “the rational ideal.” Its fundamental basis is a different idea of rationality. According the Mises, this “fundamental thesis of rationalism” is not only consistent with reality but “unassailable”:

Man is a rational being; that is, his actions are guided by reason. The proposition: Man acts, is tantamount to the proposition: Man is eager to substitute a state of affairs that suits him better for a state of affairs that suits him less. In order to achieve this, he must employ suitable means. It is reason that enables him to find out what is suitable means for attaining his chosen end and what is not.11

There is no presumption of perfect knowledge in this doctrine whatsoever. It does not require us to assume that people are infallible. Whether they are or not is a historical problem, not a praxeological one.

Despite these considerations, some Austrian economists are inclined to believe that the criticisms of Shackle’s weak thesis apply to praxeology and not just to neoclassical general equilibrium economics. Thus, Lachmann has accused Mises of omitting uncertainty and expectations from his analytical framework.12 And other Austrians have adopted the practice of referring to praxeology as “static subjectivism,” contrasting it with “dynamic subjectivism.” Such terminology blurs the distinction between praxeology (which concerns itself with the analysis of action) and conventional neoclassical analysis (which concentrates on the mathematical description of the conditions for general equilibrium or nonaction).13 Praxeology recognizes that means and ends are not “given” but are rather objects of continuous, subjective reinterpretation. Within such a framework hypothetical constructs based upon the presupposition of perfect knowledge and certainty have only limited value.14

Now let us pass briefly to Shackle’s strong thesis: the matter of the kaleidic future. Here what may be claimed against praxeology is not that it fails to recognize the categories of uncertainty, time, and expectations, but rather that it fails to reckon with some of the more crucial implications of these. What praxeology fails to account for (insofar as Shackle’s strong thesis is concerned)—and what thereby renders its inferences contingent rather than necessary—is how actors may effectively anticipate the future and, in particular, how they may anticipate future actions of other people, given that the future is “unknowable.” If people cannot foretell the future, then even the broader, praxeological idea of “rationalism” (which assumes some—more than incidental—capacity for actors in the social world to select means appropriate to their chosen ends) is unfounded. Economics is obliged, in this case, not merely to account for the use and dissemination of existing knowledge (as Hayek would have it), but to explain the possibility of entrepreneurial prediction.

Lachmann

A still greater challenge to praxeology is present in the writings of Ludwig Lachmann.15 Lachmann combines the observations of both Hayek and Shackle to demonstrate what he regards as serious defects in Mises’s method.

Lachmann accepts Hayek’s description of praxeology as essentially formal and tautological, requiring for its fruitful application to catallactics supplementary hypotheses regarding the use and dissemination of knowledge. Thus, he views Hayek’s 1937 essay as “an attempt to set Mises straight.”16 Nevertheless, Lachmann does not entertain empiricist views regarding the need for falsifiable conclusions. Instead, he adopts an unambiguously Schutzian, ideal-type approach, and stresses the need for the economic theorist to build his analysis upon assumptions as to the typical thought patterns and choices of acting people.17 Thus for Lachmann, too, economic theory cannot refer merely to homo agens and the incontestable fact of purposefulness. Instead, it must abandon its claims to universal validity and become a branch of history and applied sociology much as Weber had understood it. The pure logic of choice is supplemented by verstehen or “common sense” as a theoretical method, which is to serve in the identification of the means by which agents in the real world adapt their actions to match the ever-shifting preferences of their fellows.

Lachmann’s most significant innovation, however, is his broadening of Hayek’s thesis to allow for consideration of the implications of Shackle’s kaleidic future. Alfred Schutz maintained that people could successfully employ understanding (“common sense”) in anticipating the future actions of their fellows. While both Mises and Hayek implicitly endorsed this conclusion, Shackle refused to acknowledge a “common sense” solution to the problem of choice under uncertainty.18 Purposefulness, in Shackle’s view, is a chimerical notion: Choice is an entirely haphazard process and, therefore (contrary to the praxeological view), it merely appears or is presumed to be rational. Lachmann’s embrace of the doctrine that the future is kaleidic thus leads him to doubt the value of praxeology, dependent as it supposedly is upon the assumption that the market harbors a “tendency toward equilibrium.”

The particular problem Lachmann emphasizes is that of “divergent expectations.” Hayek had stressed the importance of knowledge dissemination in expediting the market process, pointing out the need for market participants to be able to learn about the preferences of their fellow human beings and to adjust their actions accordingly. Knowledge dissemination in this context might refer simply to the existence of market signals of profit and loss, the “criteria of success” by which the market judges attempts of agents to understand each other’s wants. The problem of “divergent expectations” is more fundamental, for even if the market involves an adequate means for the dispersion of knowledge regarding the appropriateness of past actions, the learning involved is not a substitute for, and is in fact useless without, knowledge of the future: the “guidance” provided by profit and loss signals is cold comfort in a society marked by kaleidoscopic change. In short, there does not exist in the market any known “criterion of success” that can inform entrepreneurs ex ante of the future composition of consumer demands, i.e., of the composition of plans and expectations. Praxeological conclusions, it follows, are therefore applicable not to acting man or even to perceiving man but only to anticipating man, homo divinans. The first task of economics, then, must be to show that real people are of this species. Otherwise, its theories are of doubtful value.

 

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19Hayek’s “Economics and Knowledge” was first published in Economica n.s. 4 (1937): 33-54, and reprinted with revisions in Individualism and Economic Order (Chicago: University of Chicago Press, 1948), pp. 33-56. All references are to the reprint.

20Hayek only recently made public his rejection of the praxeological method. (See “An Interview with F. A. Hayek,” in Cato Policy Report 5 [February 1983]: 6-7). Nevertheless, he has long maintained that his intention in 1937 had been to show Mises the deficiencies in the praxeological approach.

21Compare Mises, The Ultimate Foundation of Economic Science, pp. 44ff., and Human Action, pp. 38-41.

22Hayek, “Economics and Knowledge,” p. 33; emphasis added.

23Ibid., p. 55.

24Ibid., p. 47 fn.

25Ibid., p. 34.

26This reference to social causation purposefully avoids mention of the element of time. In fact, as will be shown, what social causation actually implies is not merely that people will have the capacity to understand the past valuations of other people, but that they will have some insight into the relationship of these valuations to future valuations. Only in this way may actors have reason to assume that, given their own actions A, some set of reactions B will follow rather than an entirely random, unpredictable result. The existence of social causation implies that future social events are in some sense molded by the past. An implication is that there will be a degree of qualitative regularity and uniformity in values and institutions.

27G. L. S. Shackle, Epistemics and Economics (Cambridge, England: Cambridge University Press, 1972), p. 91.

28Ibid., in the preface. Cf. also “Time, Nature, and Decision,” in The Nature of Economic Thought (Cambridge, England: Cambridge University Press, 1972), pp. 71-84.

29Mises, Theory and History, p. 269. Spiro J. Latsis, in his paper “A Research Program in Economics” (Method and Appraisal in Economics [Cambridge, England: Cambridge University Press, 1976], pp. 1-41) is also unable to comprehend the difference between the rationalism of praxeology and that of neoclassical equilibrium analysis. Thus, he describes Mises’s principle as one that asserts that “human actions are adequate or appropriate to the situations in which they occur” (p. 4, emphasis in the original). In fact, praxeology does not reckon actions as “adequate” or “appropriate.” According to it, the actions of a tribal witch doctor are no less rational than those of a modern surgeon. They are simply guided by different beliefs. Thus, contrary to Latsis’s suggestion (p. 7), it is impossible for an agent to act in such a way as to “falsify” the praxeological thesis of rationalism.

30Kirzner, “Mises and the Extension of Subjectivism,” p. 37.

31Of course, discussions of evolutionary processes and other exercises in conjectural history may be viewed as more “dynamic” than investigations in the pure logic of choice, but the latter remain dynamic nonetheless.

32Further discussion of the differences between praxeology and neoclassical general equilibrium analysis appears later in this monograph.

33See in particular Ludwig M. Lachmann, “Reflections on Hayekian Capital Theory” (unpubl. ms., 1975); “From Mises to Shackle: An Essay in Austrian Economics and the Kaleidic Society,” Journal of Economic Literature 14 (March 1976): 54-62; and “Mises and the Extension of Subjectivism,” in Kirzner, Method, Process, and Austrian Economics.

34Ludwig M. Lachmann, classroom communication.

35This point is also stressed in White, Methodology of the Austrian School, pp. 26-27.

36See Roger Koppl, “Alfred Schutz and George Shackle: Two Views of Choice” (unpubl. ms., 1982).

• 1Hayek’s “Economics and Knowledge” was first published in Economica n.s. 4 (1937): 33-54, and reprinted with revisions in Individualism and Economic Order (Chicago: University of Chicago Press, 1948), pp. 33-56. All references are to the reprint.
• 2Hayek only recently made public his rejection of the praxeological method. (See “An Interview with F. A. Hayek,” in Cato Policy Report 5 [February 1983]: 6-7). Nevertheless, he has long maintained that his intention in 1937 had been to show Mises the deficiencies in the praxeological approach.
• 3Compare Mises, The Ultimate Foundation of Economic Science, pp. 44ff., and Human Action, pp. 38-41.
• 4Hayek, “Economics and Knowledge,” p. 33; emphasis added.
• 5Ibid., p. 55.
• 6Ibid., p. 47 fn.
• 7Ibid., p. 34.
• 8This reference to social causation purposefully avoids mention of the element of time. In fact, as will be shown, what social causation actually implies is not merely that people will have the capacity to understand the past valuations of other people, but that they will have some insight into the relationship of these valuations to future valuations. Only in this way may actors have reason to assume that, given their own actions A, some set of reactions B will follow rather than an entirely random, unpredictable result. The existence of social causation implies that future social events are in some sense molded by the past. An implication is that there will be a degree of qualitative regularity and uniformity in values and institutions.
• 9G. L. S. Shackle, Epistemics and Economics (Cambridge, England: Cambridge University Press, 1972), p. 91.
• 10Ibid., in the preface. Cf. also “Time, Nature, and Decision,” in The Nature of Economic Thought (Cambridge, England: Cambridge University Press, 1972), pp. 71-84.
• 11Mises, Theory and History, p. 269. Spiro J. Latsis, in his paper “A Research Program in Economics” (Method and Appraisal in Economics [Cambridge, England: Cambridge University Press, 1976], pp. 1-41) is also unable to comprehend the difference between the rationalism of praxeology and that of neoclassical equilibrium analysis. Thus, he describes Mises’s principle as one that asserts that “human actions are adequate or appropriate to the situations in which they occur” (p. 4, emphasis in the original). In fact, praxeology does not reckon actions as “adequate” or “appropriate.” According to it, the actions of a tribal witch doctor are no less rational than those of a modern surgeon. They are simply guided by different beliefs. Thus, contrary to Latsis’s suggestion (p. 7), it is impossible for an agent to act in such a way as to “falsify” the praxeological thesis of rationalism.
• 12Kirzner, “Mises and the Extension of Subjectivism,” p. 37.
• 13Of course, discussions of evolutionary processes and other exercises in conjectural history may be viewed as more “dynamic” than investigations in the pure logic of choice, but the latter remain dynamic nonetheless.
• 14Further discussion of the differences between praxeology and neoclassical general equilibrium analysis appears later in this monograph.
• 15See in particular Ludwig M. Lachmann, “Reflections on Hayekian Capital Theory” (unpubl. ms., 1975); “From Mises to Shackle: An Essay in Austrian Economics and the Kaleidic Society,” Journal of Economic Literature 14 (March 1976): 54-62; and “Mises and the Extension of Subjectivism,” in Kirzner, Method, Process, and Austrian Economics.
• 16Ludwig M. Lachmann, classroom communication.
• 17This point is also stressed in White, Methodology of the Austrian School, pp. 26-27.
• 18See Roger Koppl, “Alfred Schutz and George Shackle: Two Views of Choice” (unpubl. ms., 1982).
• 19A break from the praxeological approach came with Friedrich Hayek’s 1937 essay “Economics and Knowledge.” The intention of this essay was ambiguous. Superficially, it appeared to be a critique of neoclassical equilibrium analysis. But it also involved a subtle rejection of the methodological presuppositions of praxeology.
• 20A break from the praxeological approach came with Friedrich Hayek’s 1937 essay “Economics and Knowledge.” The intention of this essay was ambiguous. Superficially, it appeared to be a critique of neoclassical equilibrium analysis. But it also involved a subtle rejection of the methodological presuppositions of praxeology.
• 21Though admitting that Austrian economics did possess a “formal” component (which Hayek called the “pure logic of choice”), Hayek regarded the meaningfulness and necessary truth of this formal component to be severely circumscribed. Indeed, he viewed praxeology as only contingently applicable to catallactics, i.e., to the elucidation of market phenomena. As far as the social world was concerned, the pure logic of choice was merely a collection of empirically empty tautologies. Praxeology, in seeking “apodictically certain” conclusions, had so drained itself of content as to become useless as an independent means for deriving useful truths about reality. Far from relying exclusively upon the fact of purposefulness, applications of praxeology to catallactic phenomena involve unacknowledged auxiliary assumptions about the dissemination and use of knowledge by market participants; assumptions “about causation in the real world.” This is true especially of its conclusions that rely upon the operation of competitive forces with a “tendency toward equilibrium” as their driving force. And where assumptions about causation are involved, these are subject to falsification.
• 22Though admitting that Austrian economics did possess a “formal” component (which Hayek called the “pure logic of choice”), Hayek regarded the meaningfulness and necessary truth of this formal component to be severely circumscribed. Indeed, he viewed praxeology as only contingently applicable to catallactics, i.e., to the elucidation of market phenomena. As far as the social world was concerned, the pure logic of choice was merely a collection of empirically empty tautologies. Praxeology, in seeking “apodictically certain” conclusions, had so drained itself of content as to become useless as an independent means for deriving useful truths about reality. Far from relying exclusively upon the fact of purposefulness, applications of praxeology to catallactic phenomena involve unacknowledged auxiliary assumptions about the dissemination and use of knowledge by market participants; assumptions “about causation in the real world.” This is true especially of its conclusions that rely upon the operation of competitive forces with a “tendency toward equilibrium” as their driving force. And where assumptions about causation are involved, these are subject to falsification.
• 23Though admitting that Austrian economics did possess a “formal” component (which Hayek called the “pure logic of choice”), Hayek regarded the meaningfulness and necessary truth of this formal component to be severely circumscribed. Indeed, he viewed praxeology as only contingently applicable to catallactics, i.e., to the elucidation of market phenomena. As far as the social world was concerned, the pure logic of choice was merely a collection of empirically empty tautologies. Praxeology, in seeking “apodictically certain” conclusions, had so drained itself of content as to become useless as an independent means for deriving useful truths about reality. Far from relying exclusively upon the fact of purposefulness, applications of praxeology to catallactic phenomena involve unacknowledged auxiliary assumptions about the dissemination and use of knowledge by market participants; assumptions “about causation in the real world.” This is true especially of its conclusions that rely upon the operation of competitive forces with a “tendency toward equilibrium” as their driving force. And where assumptions about causation are involved, these are subject to falsification.
• 24Hayek’s allusions to falsification are a special source of ambiguity, for one is never entirely sure whether the implied empirical analysis is supposed to make use of the crude sense of data of positivism or of “common sense” evaluation founded on ideal-types. In a footnote near the end of his essay, Hayek leads us to believe that, despite his references to Popper and to falsification, he in fact has the “common sense” procedure in mind.
• 25The thrust of Hayek’s essay is, however, unaffected by the specific type of empirical evidence it recommends. It claims that even pure economics, insofar as it concerns market phenomena and not merely the actions of isolated individuals, must be partly an empirical or psychological science rather than a logical-deductive one. It must investigate the meanings attached by individual actors to their situation, and it must examine the particular motivations and stimuli that give rise to their choices. It must become a science, not just of action, but of people’s reactions, and of how these reactions may reflect the use and dissemination of knowledge. Only in this way can economics solve the riddle as to why acting people “should be right.” And until it solves this riddle, it cannot say anything certain about market processes.
• 26To put the challenge differently, economic science must establish and examine the mechanisms of social causation. It must show that actors in the social world may become reasonably informed of the valuations of other individuals so that they may direct their actions well enough to achieve desired results. Unless this is possible, the formal conclusions of economics, and of praxeology in particular, remain purely hypothetical.
• 27In expounding his weak thesis Shackle erects a dichotomy that entirely overlooks the praxeological approach. To Shackle, who implicitly equates “formal” theory with neoclassical theory, the only conceivable basis for pure theory is one that identifies rational action with action that is “fully informed.” Thus formal theory and its body of deduced relationships are relevant, as he sees it, only to the general equilibrium schema which necessarily excludes the passage of time. Shackle therefore presents the following dilemma: “If there is fundamental conflict between the appeal to rationality and the consideration of the consequences of time as it imprisons us in actuality, the theoretician is confronted with a stark choice. He can reject rationality or time.” Clearly, this distressing choice results from Shackle’s identification of “rationality” with its neoclassical interpretation according to which rational action is action that achieves results more or less identical to those prescribed by the allegedly objective conditions of general equilibrium. Praxeology is entirely unaccounted for in this view of things, for it is at once “formal,” giving laws and theorems valid with logical necessity, yet fully applicable to a world of time and its corollary, uncertainty. Indeed, it is only in a world of time and uncertainty that action, the starting point of praxeological analysis, would be possible at all. In a world of perfect certainty and knowledge, individual “actions” would be entirely predetermined. They would be automatic, not purposeful.
• 28In expounding his weak thesis Shackle erects a dichotomy that entirely overlooks the praxeological approach. To Shackle, who implicitly equates “formal” theory with neoclassical theory, the only conceivable basis for pure theory is one that identifies rational action with action that is “fully informed.” Thus formal theory and its body of deduced relationships are relevant, as he sees it, only to the general equilibrium schema which necessarily excludes the passage of time. Shackle therefore presents the following dilemma: “If there is fundamental conflict between the appeal to rationality and the consideration of the consequences of time as it imprisons us in actuality, the theoretician is confronted with a stark choice. He can reject rationality or time.” Clearly, this distressing choice results from Shackle’s identification of “rationality” with its neoclassical interpretation according to which rational action is action that achieves results more or less identical to those prescribed by the allegedly objective conditions of general equilibrium. Praxeology is entirely unaccounted for in this view of things, for it is at once “formal,” giving laws and theorems valid with logical necessity, yet fully applicable to a world of time and its corollary, uncertainty. Indeed, it is only in a world of time and uncertainty that action, the starting point of praxeological analysis, would be possible at all. In a world of perfect certainty and knowledge, individual “actions” would be entirely predetermined. They would be automatic, not purposeful.
• 29Man is a rational being; that is, his actions are guided by reason. The proposition: Man acts, is tantamount to the proposition: Man is eager to substitute a state of affairs that suits him better for a state of affairs that suits him less. In order to achieve this, he must employ suitable means. It is reason that enables him to find out what is suitable means for attaining his chosen end and what is not.
• 30Despite these considerations, some Austrian economists are inclined to believe that the criticisms of Shackle’s weak thesis apply to praxeology and not just to neoclassical general equilibrium economics. Thus, Lachmann has accused Mises of omitting uncertainty and expectations from his analytical framework. And other Austrians have adopted the practice of referring to praxeology as “static subjectivism,” contrasting it with “dynamic subjectivism.” Such terminology blurs the distinction between praxeology (which concerns itself with the analysis of action) and conventional neoclassical analysis (which concentrates on the mathematical description of the conditions for general equilibrium or nonaction). Praxeology recognizes that means and ends are not “given” but are rather objects of continuous, subjective reinterpretation. Within such a framework hypothetical constructs based upon the presupposition of perfect knowledge and certainty have only limited value.
• 31Despite these considerations, some Austrian economists are inclined to believe that the criticisms of Shackle’s weak thesis apply to praxeology and not just to neoclassical general equilibrium economics. Thus, Lachmann has accused Mises of omitting uncertainty and expectations from his analytical framework. And other Austrians have adopted the practice of referring to praxeology as “static subjectivism,” contrasting it with “dynamic subjectivism.” Such terminology blurs the distinction between praxeology (which concerns itself with the analysis of action) and conventional neoclassical analysis (which concentrates on the mathematical description of the conditions for general equilibrium or nonaction). Praxeology recognizes that means and ends are not “given” but are rather objects of continuous, subjective reinterpretation. Within such a framework hypothetical constructs based upon the presupposition of perfect knowledge and certainty have only limited value.
• 32Despite these considerations, some Austrian economists are inclined to believe that the criticisms of Shackle’s weak thesis apply to praxeology and not just to neoclassical general equilibrium economics. Thus, Lachmann has accused Mises of omitting uncertainty and expectations from his analytical framework. And other Austrians have adopted the practice of referring to praxeology as “static subjectivism,” contrasting it with “dynamic subjectivism.” Such terminology blurs the distinction between praxeology (which concerns itself with the analysis of action) and conventional neoclassical analysis (which concentrates on the mathematical description of the conditions for general equilibrium or nonaction). Praxeology recognizes that means and ends are not “given” but are rather objects of continuous, subjective reinterpretation. Within such a framework hypothetical constructs based upon the presupposition of perfect knowledge and certainty have only limited value.
• 33A still greater challenge to praxeology is present in the writings of Ludwig Lachmann. Lachmann combines the observations of both Hayek and Shackle to demonstrate what he regards as serious defects in Mises’s method.
• 34Lachmann accepts Hayek’s description of praxeology as essentially formal and tautological, requiring for its fruitful application to catallactics supplementary hypotheses regarding the use and dissemination of knowledge. Thus, he views Hayek’s 1937 essay as “an attempt to set Mises straight.” Nevertheless, Lachmann does not entertain empiricist views regarding the need for falsifiable conclusions. Instead, he adopts an unambiguously Schutzian, ideal-type approach, and stresses the need for the economic theorist to build his analysis upon assumptions as to the typical thought patterns and choices of acting people. Thus for Lachmann, too, economic theory cannot refer merely to homo agens and the incontestable fact of purposefulness. Instead, it must abandon its claims to universal validity and become a branch of history and applied sociology much as Weber had understood it. The pure logic of choice is supplemented by verstehen or “common sense” as a theoretical method, which is to serve in the identification of the means by which agents in the real world adapt their actions to match the ever-shifting preferences of their fellows.
• 35Lachmann accepts Hayek’s description of praxeology as essentially formal and tautological, requiring for its fruitful application to catallactics supplementary hypotheses regarding the use and dissemination of knowledge. Thus, he views Hayek’s 1937 essay as “an attempt to set Mises straight.” Nevertheless, Lachmann does not entertain empiricist views regarding the need for falsifiable conclusions. Instead, he adopts an unambiguously Schutzian, ideal-type approach, and stresses the need for the economic theorist to build his analysis upon assumptions as to the typical thought patterns and choices of acting people. Thus for Lachmann, too, economic theory cannot refer merely to homo agens and the incontestable fact of purposefulness. Instead, it must abandon its claims to universal validity and become a branch of history and applied sociology much as Weber had understood it. The pure logic of choice is supplemented by verstehen or “common sense” as a theoretical method, which is to serve in the identification of the means by which agents in the real world adapt their actions to match the ever-shifting preferences of their fellows.
• 36Lachmann’s most significant innovation, however, is his broadening of Hayek’s thesis to allow for consideration of the implications of Shackle’s kaleidic future. Alfred Schutz maintained that people could successfully employ understanding (“common sense”) in anticipating the future actions of their fellows. While both Mises and Hayek implicitly endorsed this conclusion, Shackle refused to acknowledge a “common sense” solution to the problem of choice under uncertainty. Purposefulness, in Shackle’s view, is a chimerical notion: Choice is an entirely haphazard process and, therefore (contrary to the praxeological view), it merely appears or is presumed to be rational. Lachmann’s embrace of the doctrine that the future is kaleidic thus leads him to doubt the value of praxeology, dependent as it supposedly is upon the assumption that the market harbors a “tendency toward equilibrium.”