Lesson 5 of 7
Mises's method, as he stated it
Mises claimed the core of economics is deduced from the fact that people act, so it holds before any data is collected. The claim, stated exactly.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- Praxeology is Mises's name for the general theory of human action, and economics is the part of it he worked out.
- His claim is that its core propositions are deduced from the fact that people act, so they hold before any observation and cannot be overturned by one.
- He separates praxeology from history: theory supplies the propositions, and historical evidence tells you which of them applied to a particular episode.
Every school has a view about what kind of knowledge economics is. Mises gave his an unusual answer, stated it at the front of his largest book, and built everything after it on that answer. It is the most contested thing in the tradition and it is worth stating exactly.
Where praxeology puts economics
- 1The fact of actionPeople choose means to reach ends
- 2DeductionPropositions worked out from that fact alone
- 3Economic theoryTrue before any data is gathered, on this claim
- 4HistoryWhich propositions applied, in which episode
The claim, in order
Mises starts from a single statement: people act, which means they use means to pursue ends they prefer to what they have. He treats that as something you cannot coherently deny, because denying it is itself an action taken for a reason.
From there he says the rest is worked out by deduction. Scarcity, preference, exchange, the fact that a person gives up the less urgent want to serve the more urgent one: all of it, on this account, follows from the starting point rather than from measurement.
In chapter II of Human Action he sets out why. The basic logical relations he is reasoning with are, he argues, not themselves provable or disprovable by experience, because they are what any experience has to be organised by in the first place. He accepts that the natural sciences proceed by observation and experiment, and denies that this is the only way a discipline can proceed.
What praxeology is not
It is not a claim that facts do not matter. Mises divides the sciences of human action into praxeology and history, and gives history the job praxeology cannot do: saying what actually happened, and which of the theory's propositions were the operative ones in a particular time and place.
It is also not a claim to predict. A theory that tells you a credit expansion sets something in motion does not tell you when, how large, or in which industry, and Mises's own division of labour between theory and history is the reason.
Why it is here rather than in a footnote
This method is the reason the rest of the track reads the way it does. Claims in this tradition are usually presented as things that follow, not as things that were measured, and the arguments are chains rather than regressions. A reader who does not know that will find the literature strangely short of tables.
It is also the joint at which the sharpest criticism attacks, which is the next lesson.
Check yourself
What does Mises start praxeology from?
- A statistical regularity in economic data
- The fact that people act, using means to pursue preferred ends
- An assumption about perfect knowledge
Show the answer
Answer: B.
The starting point is the fact of action itself. Mises treats it as undeniable on the ground that denying it is an action taken for a reason.In Mises's division, what job does history do?
- It supplies the general propositions of economics
- It establishes what happened and which propositions applied in a particular case
- It tests whether the propositions are true
Show the answer
Answer: B.
Chapter II of Human Action separates praxeology from history. Theory supplies the propositions; history says which of them were operative in a given episode.On this method, can a statistic refute a core proposition of the theory?
- Yes, that is what statistics are for
- No, because Mises holds the propositions are prior to experience rather than derived from it
- Only if the sample is large enough
Show the answer
Answer: B.
That is his claim, and it is precisely the claim the next lesson puts under pressure. Whether a discipline can work this way is the live dispute.Sources
- Mises, Human Action, 1949, chapter II, on the epistemological problems of the sciences of human action, including the separation of praxeology from history and the argument that the basic logical relations are prior to experience.
- Mises, Human Action, 1949, part one, for the starting point in the fact of action.
- Caplan, 'The Austrian Search for Realistic Foundations', Southern Economic Journal, 1999, for the published objection taken up in the next lesson.
What this leaves out
- This is a heterodox tradition. The mainstream account of the same phenomenon differs, and nothing here is a forecast or a view on any security.
- This lesson states Mises's own position as he stated it. It does not endorse it, and the next lesson argues against it.
- The two example propositions are written to show a contrast in kind. Neither is a result anyone measured here.