Saturday, July 22, 2006

What is Economics and Praxeology?

This article is a summary and personal interpretation of the introduction to Human Action, by Ludwig von Mises.

- - - - - - - - - - - - - - - - - - - - -

Economics is a science that has emerged in the last two hundred and fifty years, distinct from the sciences discovered by the ancient greeks: logic, mathematics, psychology, physics and biology, etc. It started with the recognition of regular, predictable patterns of marketplace phenomena --- prices, supply, demand, profit motive, material wealth, poverty, etc. The classical economists from before Adam Smith through Karl Marx struggled with the concept of value, attempting to explain it either as some measure of labor expended or some other objectively ascertainable phenomenon. Eventually the ‘objective’ theories of value were replaced with the concept that value is always subjective, the product of the choices and preferences of idiosyncratic individuals. Once that happened, market economics was seen to be just one narrow part of larger study of human choice and action, which Mises calls Praxeology.

So economics is a field of study within a larger context, and with a broader scope than it is popularly understood to have. It is not just about money. It is not just industrial products, services, markets, trade, regulation and taxes. It is not about materialism, ‘greed’ or ‘selfishness’, narrowly defined.

Rather, economics is the study of scarce resources with alternative uses, and how people choose to act in using, re-creating, saving, spending and utilizing them for whatever purpose suits them; survival, comfort, materialism, hedonism, spritual advancement, religious piety, charity, artistic patronnage, altruism, philanthropy, recreation, sado-masochism, intellectual enrichment, or just plain fun. Resources may be material, such as food, land, machinery, etc. or ideal/abstract, such as leisure time, spiritual fulfillment, or vocational satisfaction.

In addition to being a science of human action based on subjective appraisals of value, as opposed to a mechanical science like physics and its objective measures, there are other important distinctions to be made.

First, Economics is not history, not even ‘economic’ history. In the late nineteenth century, the German Historical School dominated the study of what was called economics in universities. But History is not economics proper. Rather, economics is a theoretical science that take ideas and scenarios through to their logical conclusions. Those theories, ideas and scenarios are what this book is about.

Finally, economics is not, according to Mises, a mathematical science capable of predicting precise magnitudes. It cannot tell what the price of milk will be on August 17 if the president’s tax plan is ratified, the union gets the wage increase it is stiking for, the rainfall is above average and there is a full moon. It can only predict general tendencies and directions which are likely to occur under specific circumstances.

Economics defined in this way is not universally embraced; not by all thinkers of past centuries, nor by present-day university economics departments. It has been condemned as the ‘Dismal Science’ by Thomas Carlyle. Karl Marx could not accept the validity of a science which claimed universal validity in the study of human action, since in his view people’s modes of thinking could only be determined by their class membership or affiliation (himself conveniently exempted); bourgeois, proletariat, serf, etc. Others base similar objections on the basis of race, ethnicity, culture, etc., claiming that what is true for one group is not valid for another (this is known as ‘polylogism’). No one could claim that there is a ‘Jewish Physics’ or a ‘Chinese Chemistry’ that would not be equally valid for Russians, Germans and Africans. But for economics, the polylogists have succeeded to a certain extent in marginalizing economists as the sycophant apologists of bourgeois capitalism, and dismissing them as partisan politicians.

This blog ( defends and promotes economics as a positive, practical and useful science; indeed, a science indispensible to the survival of civilization. In order to do this, we must define and clarify what economics is and isn’t, what its objects and method are and what they can’t be, what its limitations and opportunities are.

All science has its limits, even the natural or ‘pure’ sciences. Newton’s theories of physics are today still useful for simple scenarios, but they completely fall apart when it comes to advanced problems, for which it is necessary to substitute the theories of Einstein and his disciples. Science then, is a process of seeking out truth without ever finding the ultimate, final destination beyond which there is no going.

Economics has been criticized by some natural scientists for not using the methods and procedures of the laboratory. But the problems of human behavior within and without markets is not a laboratory problem. Different problems require different methods.

Economics has been further criticized for falling short of the manifest accomplishments of engineering; all the inventions, machines, capital equipment etc. which this discipline has produced which have greatly magnified the power of the human mind and muscle and increased material comfort and society’s standard of living. But if it weren’t for economics, none of these advances could have been permitted. In all times, even in our day, new inventions and improvements are a threat to entrenched interests and established orders. The building of capital equipment requires the accumulation of savings plus the vision of exceptional creative and entrpreneurial minds, belonging to individuals who are rarely initially part of the established political power structure. Extremely few kings, presidents, governors, union leaders, dictators, despots or socialist premiers have been prepared to tolerate the inequality (their own inferiority) implicit in the entrepreneurial proposition. Without entrepreneurship, engineering is vain. Without tolerance for inequality (the superiority of genius, the reward of profit for successfully anticipating the most urgent wants of the consumers, and losses associated with failing to meet these needs), entrepreneurship is impossible. Without economics, there is no explanation and justification of inequality and entrepreneurship. The accomplishments of the industrial revolution are the accomplishments of the classical economists, through the policy liberalizations that they advocated.

Economics proper cannot tell anyone what to products to value, what services to seek, or what ends to pursue. But it can tell what will and will not work, and can demonstrate the utility or disutility (or is it futility?) of different modes of social organization. It’s time to listen to what economics has to say; the survival of civilization depends on it.

- - - - - - - - - - - - - - - - - - -

Copyright©2006 by Howard Hyde. All rights reserved.

[1] The term praxeology was first used in 1890 by Espina. If you can read French, look up his article “Les Origines de la technologie,” Revue Philosophique, XVth year, XXX, 114-115 and his book published in Paris in 1897 with the same title.

Another big, unfamiliar word that Mises uses is ‘Catallactics’, referring specifically to the dynamics of the exchange and markets.