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

Implications of the “Kaleidic Society”

Exponents of the doctrine of the kaleidic society have suggested that the praxeological method presupposes a thesis of historical determinism. They believe that in implicitly rejecting their view, praxeology assumes a rigid link between the patterns of people’s actions in the present and their patterns in the future. Such an assumption contradicts the Austrian notion of purposefulness and involves as well a tacit denial of free will.

This representation of praxeology is based upon a serious confusion of its tenets with those of general equilibrium analysis. Moreover, it reveals a failure to appreciate the distinction, recognized by praxeology, between “fatalist” determinism and “activist” determinism.1 The doctrine of fatalist determinism maintains that the course of social events is beyond human control; its thesis, to the extent that it is accepted, “paralyzes the will and engenders passivity and lethargy among human species.”2 There is no place in this doctrine for purposeful action.

Activist determinism refers to “the insight that every change is the result of a cause and that there is a regularity in the concatenation of cause and effect.”3 It is distinct from fatalist determinism and (therefore from materialism and from what Karl Popper refers to as the “nightmare” of physical determinism4) because it allows for the category of mental (or social) causation. People’s actions, according to the thesis of activist determinism, are “determined” by the ideas (ends, knowledge, and understanding) they hold. But praxeology treats these ideas as ultimate data; it does not seek to explain them by tracing them back to prior causes. This is how praxeology separates itself from psychology.

What the current critics of praxeology assert is this: If there is no regularity or uniformity in human ideas, if the future is marked by kaleidic change, then people cannot anticipate the actions and requirements of their fellows. Speculation therefore becomes haphazard. Action within society, since it necessarily involves speculation about other people’s reactions, although it is believed to be purposeful, is vain. Even routine actions presuppose routine behavior on the part of others. All life in society is thus a random, irrational struggle.

This thesis amounts to a denial of mental or social causation or of activist determinism. Praxeology cannot “prove” this denial to be unfounded. It treats the existence of causality, including social causality, as an ultimate given, a priori even of human purposefulness:

The philosophical, epistemological, and metaphysical problems of causality and of imperfect induction are beyond the scope of praxeology. We must simply establish the fact that in order to act, man must know the causal relationship between events, processes, or states of affairs. And only so far as he knows this relationship, can his action attain the ends sought. We are fully aware that in asserting this we are moving in a circle. For the evidence that we have correctly perceived a causal relation is provided only by the fact that action guided by this knowledge results in the expected outcome.5

The questions of coordination and the possibility of progress are one and the same, both have to do with the existence of social causation. The doctrine that the future is kaleidic, if it means anything at all, means the denial of spontaneous order, coordination, progress, and, fundamentally, social causation, for the first of these are merely manifestations of the last.

No evidence can dispose of the suggestion that the future is kaleidic and that social causation is lacking. Yet current efforts of Austrian economists include attempts to develop a theory of entrepreneurial prediction or understanding that might resolve the problems implied by the uncertainty of the future. This seems to be part of the intent of Rizzo and O’Driscoll in their book The Economics of Time and Ignorance.6 Such work may uncover useful evidence concerning conditions that encourage entrepreneurial success. Nevertheless, it is not likely to satisfy critics who maintain that the future is beyond the grasp of entrepreneurial ability. Any efforts of this new Austrian “research program” to reconstruct praxeology on the basis of a theory of knowledge would in this sense be misguided. The problem is that any explanation of entrepreneurial prediction and understanding must make reference to ideal-type representations of human thought patterns and preferences (as are employed, for example, in Schutz’s work). Such representations already presuppose the regularity and uniformity rejected by those who hold the future to be kaleidic:

If an ideal type refers to people, it implies that in some respect these men are valuing and acting in a uniform or similar way. When it refers to institutions, it implies that these institutions are products of uniform or similar ways of valuing and acting or that they influence valuing and acting in a uniform or similar manner.7

Those who consistently believe Shackle’s doctrines are bound to view explanations of human understanding that employ ideal-type constructs as unjustified and question-begging.

The only other recourse open to those who seek an empirical or falsifiable refutation of Shackle’s thesis is to attempt an explanation of social causation itself; that is, an explanation of how a person’s actions may bring about a particular set of responses on the part of other people. To pursue such a course of study would require one to entertain a belief in strict behaviorism. Attempts to develop a theory of social causation would degenerate into a search for social “responses” to entrepreneurial “stimuli.” Were such attempts able to succeed, they could at best provide a basis for a theory, not of people’s actions, but of their reactions, and would, therefore, encompass a denial of purposefulness. Any such research program must ultimately collapse under the weight of its own self-contradictory presuppositions.8 But to the extent that it is seriously undertaken by Austrian economists, it would as thoroughly undermine their school’s viewpoints as would wholesale adoption of Shackle’s views.

Although evidence cannot refute the hypothesis that the future is kaleidic, reason can expose the contradictions that must result from its consistent embrace. Praxeology has employed this approach in the past in criticizing the doctrines of historicism and logical positivism.

The idea that social change is kaleidic implies, as has been shown, the denial of both fatalist and activist determinism. This leaves only the alternative of complete indeterminism: the social events of the future have no necessary connection with those of the past. In such a world, people would have no reason to act. They would have no reason to believe that any particular action (insofar as its success depends upon the valuations of other people) would lead to any particular, desired state of affairs. They could therefore have no basis for preferring one set of actions to another. Such a situation would constitute no less a “nightmare” than Popper’s physical determinism. It would, as its proponents suggest, demolish the categories of “order” and “coordination”; but it would also render meaningless the idea of free will. Human will, in order to be useful, must be able to gain some degree of command over its circumstances.

Consistently applied, the doctrine of the kaleidic society must also lead to the abandonment of all quests for knowledge about human action. In the world that it postulates, both theory and history would be useless. People could learn nothing from the past. Moreover, its meaningful investigation would be impossible:

If that which is becoming were altogether independent of the past and in no way related to it not only would historic events have no connection with each other but we should not have any extended events at all. We cannot speak of any historic process unless there is continuity, unless there are elements of identity between the present and the past.9

Moreover, “to deny that the past molds the future is to deny that there is any continuity or any process.”10 Thus, the search for theory, i.e., for necessary and universal patterns in human action, would be fruitless.

Oskar Morgenstern also has argued that the assumption of radical uncertainty is incompatible with the pursuit of theoretical knowledge:

Next to the assumption of complete, unlimited foresight, there must be rejected, too . . . the assumption that there exists no foresight at all. That would mean complete [chaos] in the conduct of men. . . . Such an assumption would make the existence of the economy just as impossible as that of economic theory which, as does all science, has to posit a minimum of uniformity in the world. That there is no kind of foresight would be the equivalent to the assertion that acts of the individuals could not be arranged at all.... So it can be maintained that some positive degree of “knowledge” as the future behavior, that is, one with more or less established assumptions about the future, is absolutely necessary for the economy.11

All theory presupposes the existence of a degree of qualitative regularity and uniformity in the concrete phenomena of reality. The classification of events and institutions presupposes such a belief; so, indeed, does the very existence and use of language. Thus, it is utterly contradictory for upholders of the doctrine that the future is kaleidic to involve themselves in theoretical discussions, especially when such discussions refer to institutions such as banks or money or to classes of events such as the trade cycle or inflation. Such categories, including all ideal-typical constructs employed in economic history and in the hypotheses of social science, have meaning only by virtue of an appeal to the regularity and continuity of events in the social world. Thus, it is futile to attempt, pace Hayek, to explain “why [people] should ever be right.” Rather, acceptance of the fact that people can be right is a requirement imposed by the rules of reason themselves. Given this a priori fact, we may proceed directly to consider “why people commit mistakes” without troubling ourselves with attempts to investigate the actual mechanisms of social causation.

Of course, in making these points, I do not pretend to refute the position of an extreme nihilist who would completely deny a place for causality in the sequence of social events. I merely observe that, to be consistent, such a person would have to refrain from making assertions regarding the value and significance of particular market arrangements. More fundamentally, people who wish to deny that there is causation in the social world need to explain their own participation in the market and in the discussions of economic the-ory.12

The logical alternative for believers in kaleidic change who seek to engage in economics is to adopt a tempered version of the kaleidic society thesis. In this case, they might maintain that the future is only potentially kaleidic and that history does witness temporary periods of relative stability and even progress. In the midst of such intervals, institutions exist that possess a degree of permanence. Economic theory may deal with these institutions and with the human actions that give rise to them, although it must recognize that its conclusions are never a description of necessary or universally valid truths. This outlook, of course, defines historicism. There is no point in repeating here the familiar epistemological arguments that oppose it.13

To summarize: Praxeology cannot refute historicism or any other variant of the thesis that the future is unconnected with the past. It treats the category of causality, including mental and social causality, as a priori. It assumes a world marked neither by perfect certainty nor by kaleidic change and continually diverging expectations. In other words, it takes as given a set of conditions that make purposeful human action possible, and it then asks what circumstances hamper, and which ones assist, the likelihood of agents’ success. In proceeding in this manner (instead of seeking to actually explain “why men should ever be right”), praxeology takes the only route available to theory that avoids self-contradiction. It adopts as its starting point—but does not try to explain—”the actual persistence of human habits and institutions” that “is one of the great facts of history which we cannot ignore if we are to retain any understanding.”14

A stalwart might still argue that praxeology, like Euclidian geometry, is purely formal and arbitrary rather than necessarily true. On this view, praxeology may not apply to any actual experience of social reality. But expressing the argument in this manner immediately reveals its absurdity, for to imagine a social “experience” to which the logic of action does not apply is to imagine away social experience altogether. This is because the idea of “experience” itself presupposes the categories of causality and regularity on which praxeology depends: “In a universe lacking [regularity] there could not be any thinking and nothing could be experienced. For experience is the awareness of identity in what is perceived; it is the first step toward a classification of events. And the concept of classes would be empty and useless if there were no regularity.”15

So long as there can be meaningful experience of social phenomena, then this experience will be one for which the deductions of praxeology are valid. To imagine otherwise is to imagine a social environment free from meaningful experience altogether. Thinking and acting people cannot consistently regard their world as one in which the laws of praxeology are mere formalities.

Of course, it may be that a world exists in which praxeology would not provide useful knowledge. But this would not be a world in which either purposeful action or economic knowledge mattered or would be possible. The observations of any “nonpraxeological” economics, even if valid, could not serve any useful purpose. Furthermore, theories of “knowledge dissemination” and of the “market process,” however informative they may be, can no more “replace” praxeology than they can undermine the doctrine of the (radically) kaleidic society. Nor should they be viewed as prerequisites to the drawing of valid praxeological conclusions.

 

________________

16On this distinction, see Mises, Theory and History, pp. 117-80.

17Ibid., p. 178.

18Ibid., p. 177.

19Karl Popper, “Of Clocks and Clouds,” in Objective Knowledge (Oxford, England: Oxford University Press, 1972), p. 217.

20Mises, Human Action, p. 23. See also, Mises, The Ultimate Foundation of Economic Science, p. 20: “All we can say about causality is that it is a priori not only of human thought but also of human action.”

21Gerald P. O’Driscoll and Mario Rizzo, The Economics of Time and Ignorance (New York: Basil Blackwell, 1984).

22Mises, Theory and History, p. 316.

23See Morris Cohen, Reason and Nature: An Essay on the Meaning of Scientific Method (New York: Dover, 1978), pp. 334-41.

24Morris Cohen, The Meaning of Human History, 2nd ed. (La Salle, Ill.: Open Court, 1961), pp. 63-64.

25Ibid., p. 64. This is what is implied by the denial of what I have called social causation.

26Oskar Morgenstern, “Perfect Foresight and Economic Equilibrium,” p. 175.

27A11 discourse, scientific or otherwise, presupposes mental causation: it involves belief that there is an exploitable relationship between our ideas and actions and the ideas and actions forthcoming in our fellows. Through discussion, and theoretical discussion especially, one attempts to cause others to change their beliefs and actions in some anticipatable manner. This is not simply a metaphorical way of putting things. It appears so only because we are thoroughly ignorant of the causal process involved. Similarly, entrepreneurial actions presuppose social causation. This is the basis for the belief on the part of entrepreneurs that they may successfully predict (understand) and influence the future choices of others.

28Cf. Mises, Epistemological Problems, chap. 2, and Carl Menger, Problems of Economics and Sociology (Urbana: University of Illinois Press, 1963).

29Cohen, Human History, p. 64.

30Mises, The Ultimate Foundation of Economic Science, pp. 15, 21.

• 1On this distinction, see Mises, Theory and History, pp. 117-80.
• 2Ibid., p. 178.
• 3Ibid., p. 177.
• 4Karl Popper, “Of Clocks and Clouds,” in Objective Knowledge (Oxford, England: Oxford University Press, 1972), p. 217.
• 5Mises, Human Action, p. 23. See also, Mises, The Ultimate Foundation of Economic Science, p. 20: “All we can say about causality is that it is a priori not only of human thought but also of human action.”
• 6Gerald P. O’Driscoll and Mario Rizzo, The Economics of Time and Ignorance (New York: Basil Blackwell, 1984).
• 7Mises, Theory and History, p. 316.
• 8See Morris Cohen, Reason and Nature: An Essay on the Meaning of Scientific Method (New York: Dover, 1978), pp. 334-41.
• 9Morris Cohen, The Meaning of Human History, 2nd ed. (La Salle, Ill.: Open Court, 1961), pp. 63-64.
• 10Ibid., p. 64. This is what is implied by the denial of what I have called social causation.
• 11Oskar Morgenstern, “Perfect Foresight and Economic Equilibrium,” p. 175.
• 12A11 discourse, scientific or otherwise, presupposes mental causation: it involves belief that there is an exploitable relationship between our ideas and actions and the ideas and actions forthcoming in our fellows. Through discussion, and theoretical discussion especially, one attempts to cause others to change their beliefs and actions in some anticipatable manner. This is not simply a metaphorical way of putting things. It appears so only because we are thoroughly ignorant of the causal process involved. Similarly, entrepreneurial actions presuppose social causation. This is the basis for the belief on the part of entrepreneurs that they may successfully predict (understand) and influence the future choices of others.
• 13Cf. Mises, Epistemological Problems, chap. 2, and Carl Menger, Problems of Economics and Sociology (Urbana: University of Illinois Press, 1963).
• 14Cohen, Human History, p. 64.
• 15Mises, The Ultimate Foundation of Economic Science, pp. 15, 21.
• 16This representation of praxeology is based upon a serious confusion of its tenets with those of general equilibrium analysis. Moreover, it reveals a failure to appreciate the distinction, recognized by praxeology, between “fatalist” determinism and “activist” determinism. The doctrine of fatalist determinism maintains that the course of social events is beyond human control; its thesis, to the extent that it is accepted, “paralyzes the will and engenders passivity and lethargy among human species.” There is no place in this doctrine for purposeful action.
• 17This representation of praxeology is based upon a serious confusion of its tenets with those of general equilibrium analysis. Moreover, it reveals a failure to appreciate the distinction, recognized by praxeology, between “fatalist” determinism and “activist” determinism. The doctrine of fatalist determinism maintains that the course of social events is beyond human control; its thesis, to the extent that it is accepted, “paralyzes the will and engenders passivity and lethargy among human species.” There is no place in this doctrine for purposeful action.
• 18Activist determinism refers to “the insight that every change is the result of a cause and that there is a regularity in the concatenation of cause and effect.” It is distinct from fatalist determinism and (therefore from materialism and from what Karl Popper refers to as the “nightmare” of physical determinism) because it allows for the category of mental (or social) causation. People’s actions, according to the thesis of activist determinism, are “determined” by the ideas (ends, knowledge, and understanding) they hold. But praxeology treats these ideas as ultimate data; it does not seek to explain them by tracing them back to prior causes. This is how praxeology separates itself from psychology.
• 19Activist determinism refers to “the insight that every change is the result of a cause and that there is a regularity in the concatenation of cause and effect.” It is distinct from fatalist determinism and (therefore from materialism and from what Karl Popper refers to as the “nightmare” of physical determinism) because it allows for the category of mental (or social) causation. People’s actions, according to the thesis of activist determinism, are “determined” by the ideas (ends, knowledge, and understanding) they hold. But praxeology treats these ideas as ultimate data; it does not seek to explain them by tracing them back to prior causes. This is how praxeology separates itself from psychology.
• 20The philosophical, epistemological, and metaphysical problems of causality and of imperfect induction are beyond the scope of praxeology. We must simply establish the fact that in order to act, man must know the causal relationship between events, processes, or states of affairs. And only so far as he knows this relationship, can his action attain the ends sought. We are fully aware that in asserting this we are moving in a circle. For the evidence that we have correctly perceived a causal relation is provided only by the fact that action guided by this knowledge results in the expected outcome.
• 21No evidence can dispose of the suggestion that the future is kaleidic and that social causation is lacking. Yet current efforts of Austrian economists include attempts to develop a theory of entrepreneurial prediction or understanding that might resolve the problems implied by the uncertainty of the future. This seems to be part of the intent of Rizzo and O’Driscoll in their book The Economics of Time and Ignorance. Such work may uncover useful evidence concerning conditions that encourage entrepreneurial success. Nevertheless, it is not likely to satisfy critics who maintain that the future is beyond the grasp of entrepreneurial ability. Any efforts of this new Austrian “research program” to reconstruct praxeology on the basis of a theory of knowledge would in this sense be misguided. The problem is that any explanation of entrepreneurial prediction and understanding must make reference to ideal-type representations of human thought patterns and preferences (as are employed, for example, in Schutz’s work). Such representations already presuppose the regularity and uniformity rejected by those who hold the future to be kaleidic:
• 22If an ideal type refers to people, it implies that in some respect these men are valuing and acting in a uniform or similar way. When it refers to institutions, it implies that these institutions are products of uniform or similar ways of valuing and acting or that they influence valuing and acting in a uniform or similar manner.
• 23The only other recourse open to those who seek an empirical or falsifiable refutation of Shackle’s thesis is to attempt an explanation of social causation itself; that is, an explanation of how a person’s actions may bring about a particular set of responses on the part of other people. To pursue such a course of study would require one to entertain a belief in strict behaviorism. Attempts to develop a theory of social causation would degenerate into a search for social “responses” to entrepreneurial “stimuli.” Were such attempts able to succeed, they could at best provide a basis for a theory, not of people’s actions, but of their reactions, and would, therefore, encompass a denial of purposefulness. Any such research program must ultimately collapse under the weight of its own self-contradictory presuppositions. But to the extent that it is seriously undertaken by Austrian economists, it would as thoroughly undermine their school’s viewpoints as would wholesale adoption of Shackle’s views.
• 24If that which is becoming were altogether independent of the past and in no way related to it not only would historic events have no connection with each other but we should not have any extended events at all. We cannot speak of any historic process unless there is continuity, unless there are elements of identity between the present and the past.
• 25Moreover, “to deny that the past molds the future is to deny that there is any continuity or any process.” Thus, the search for theory, i.e., for necessary and universal patterns in human action, would be fruitless.
• 26Next to the assumption of complete, unlimited foresight, there must be rejected, too . . . the assumption that there exists no foresight at all. That would mean complete [chaos] in the conduct of men. . . . Such an assumption would make the existence of the economy just as impossible as that of economic theory which, as does all science, has to posit a minimum of uniformity in the world. That there is no kind of foresight would be the equivalent to the assertion that acts of the individuals could not be arranged at all.... So it can be maintained that some positive degree of “knowledge” as the future behavior, that is, one with more or less established assumptions about the future, is absolutely necessary for the economy.
• 27Of course, in making these points, I do not pretend to refute the position of an extreme nihilist who would completely deny a place for causality in the sequence of social events. I merely observe that, to be consistent, such a person would have to refrain from making assertions regarding the value and significance of particular market arrangements. More fundamentally, people who wish to deny that there is causation in the social world need to explain their own participation in the market and in the discussions of economic the-ory.
• 28The logical alternative for believers in kaleidic change who seek to engage in economics is to adopt a tempered version of the kaleidic society thesis. In this case, they might maintain that the future is only potentially kaleidic and that history does witness temporary periods of relative stability and even progress. In the midst of such intervals, institutions exist that possess a degree of permanence. Economic theory may deal with these institutions and with the human actions that give rise to them, although it must recognize that its conclusions are never a description of necessary or universally valid truths. This outlook, of course, defines historicism. There is no point in repeating here the familiar epistemological arguments that oppose it.
• 29To summarize: Praxeology cannot refute historicism or any other variant of the thesis that the future is unconnected with the past. It treats the category of causality, including mental and social causality, as a priori. It assumes a world marked neither by perfect certainty nor by kaleidic change and continually diverging expectations. In other words, it takes as given a set of conditions that make purposeful human action possible, and it then asks what circumstances hamper, and which ones assist, the likelihood of agents’ success. In proceeding in this manner (instead of seeking to actually explain “why men should ever be right”), praxeology takes the only route available to theory that avoids self-contradiction. It adopts as its starting point—but does not try to explain—”the actual persistence of human habits and institutions” that “is one of the great facts of history which we cannot ignore if we are to retain any understanding.”
• 30A stalwart might still argue that praxeology, like Euclidian geometry, is purely formal and arbitrary rather than necessarily true. On this view, praxeology may not apply to any actual experience of social reality. But expressing the argument in this manner immediately reveals its absurdity, for to imagine a social “experience” to which the logic of action does not apply is to imagine away social experience altogether. This is because the idea of “experience” itself presupposes the categories of causality and regularity on which praxeology depends: “In a universe lacking [regularity] there could not be any thinking and nothing could be experienced. For experience is the awareness of identity in what is perceived; it is the first step toward a classification of events. And the concept of classes would be empty and useless if there were no regularity.”