Compendium of Praxeological Statements

Economics Economics Questions
1

Hello all! Lately, I have been struggling with a few finer (yet critical) points of Austrian theory, namely praxeological statements such as the Quantity Theory of Money. It seems to me that if we make a statement such as the QToM (especially the “other things being equal” clause of it) and assert it as praxeologically true, we are making the same mistakes that Neoclassicals and Chicago-Schoolers make when they assume unrealistic things like Perfect Competition and Perfect Knowledge. It seems to break us away from our Mengerian, causal-realist roots.

I was hoping to use this thread to compile a list of praxeological statements so that I, and anyone else who is wrestling with this problem, can peruse them and sort out the issue accordingly.

I’ll start us off with:

“Humans act.”

and

“Every voluntary exchange ex ante benefits both parties.”

(NOTE–Please do not use this space to post an endless array of mathematical equations. We’re all (except the radical Kantians) aware of their axiomatic, a priori strength but they have nothing to do with the logic of human action.)

2

Bump.

3

Let me state that I don’t even think that the Quantity Theory of Money is a praexological statement since it eschews action and choice for determination of variables according to their timeless identity with other variables. I believe that Mises was against this theory.

Praexological statement 3: man acts now rather than later.

4

Yes, Mises supported an ‘expanded quantity theory of money’. That is basically his 1912 Theory.

Basically, expanded quantity of money and money-substitutes does not necessarily lower the price of money (Turgot actually remarked of this once) but it depends on whether people are willing to spend the money, and on what people spend it on.

For instance, if ability to loan money increases, then it is not the price of all goods which rise, but only capital goods (and that is also because businesses demand them more, not only because money is less scarce: it is less scarce because business are more willing to spend and to borrow and banks more willing to lend).

And the temporal procedure, in that case, then, is the higher price of capital goods, lower price of consumption goods at first time interval; then business fail and the more roundabout methods of production which were undertaken were interrupted, causing high price of consumption goods and low price of useless capital goods in general (and ‘specific’ capital goods being the greater proportion of them, which was Hayek’s contribution).

On the other hand, if money on the demand side is increased in quantity (commodity currency is debased or paper currency printed), then it is some consumption goods that rise in price, but not others (causing gain to some businesses at expense of others), which was explained originally by not Mises, but Cantillon and then elaborated upon by Gossen. This causes breakdown of economic calculation via the money losing those qualities that made it money (this is phrase, in fact of Gossen). Quite rapidly the expansion of some business is followed by collapse during transition to new money (which Mises called, in its extreme state, flight into real values).

And so on, for other money et al quantity changes.

Each of these changes has a temporal ordering, the first being immediate at place of ‘injection’ to use the modern Austrian term.

5

Anthony:

I’m not sure how much help I can be with your list, but I think I can offer some insight into your original statement above.

If we view the law of marginal utility as Menger’s primary insight, and the fundamental insight of Austrian analysis, we may notice that this law essentially is what we may refer to as a “law of consciousness.” The law states a connection between an actor coming into possession of a unit of supply, and the value he attaches to this unit. It is a law of “individual action” or individual consciousness. There is an invarient relationship between an individual’s receiving or relinquishing a unit of supply, and the value he attaches to a unit of supply. The law is about a relationship between value and supply in the mind of the individual actor.

This was the pioneering insight upon which Austrian economics was founded. However, by the early part of the twentieth century, this insight was already being given an alternative interpretation and understanding. A subtle change occurred wherein the insight which was essentially a law of consciousness or of individual action, came to be applied as a law of a market economy, which is not exactly the same thing.

I believe you are touching on the same essential point, when you say that the QToM, a law of the market, takes us away from strict praxeological reasoning of the type that is implicit in Menger’s approach.

(I would probably take issue with a characterization of the essence of Menger’s insights as “causal realist.” I don’t think Mises refers to Menger as a causal-realist. But this is a different issue)

The change in interpretation and application of economic analysis is described by Hayek in his essay “Economics and Knowledge.” In this essay, he writes:

“Questions essentially similar to those mentioned arise in fact as soon as we try to apply the system of tautologies—those series of propositions which are necessarily true because they are merely transformations of the assumptions from which we start and which constitute the main content of equilibrium analysis—to the situation of a society consisting of several independent persons. I have long felt that the concept of equilibrium itself and the methods which we employ in pure analysis have a clear meaning only when confined to the analysis of the action of a single person and that we are really passing into a different sphere and silently introducing a new element of altogether different character when we apply it to the explanation of the interactions of a number of different individuals.”

“I must first show that the concept of equilibrium has a clear meaning if applied to the actions of a single individual and what this meaning is.”

“…the sense in which we use the concept of equilibrium to describe the interdependence of the different actions of one person does not immediately admit of application to the relations between actions of different people.”

“What, however, seems so far to have escaped notice is that this whole procedure involves a confusion of a much more general character, of which the point just mentioned is merely a special instance, and which is due to an equivocation of the term “datum.” The data which here are supposed to be objective facts and the same for all people are evidently no longer the same thing as the data which formed the starting-point for the tautological transformations of the Pure Logic of Choice. There “data” meant those facts, and only those facts, which were present in the mind of the acting person, and only this subjective interpretation of the term “datum” made those propositions necessary truths. “Datum” meant given, known, to the person under consideration But in the transition from the analysis of the action of an individual to the analysis of the situation in a society the concept has undergone an insidious change of meaning.”

So here, Hayek is chronicling the change that was already well underway by 1937. As Hayek notes, the form of economic analysis that apparently had been taken for granted by many economists—and this includes himself, Menger, and Mises—was an analysis based on the relations of “those facts, and only those facts, which were present in the mind of the acting person.”

In other words, this analytical method was based on strict methodological individualism. Hayek is saying that this method is being subtly abandoned, and replaced by a method which seeks to analyze “the relations between actions of different people.”

What you may be sensing or seeing problems with then, is the disconnect between the type of praxeological reasoning that is based on “deducing” the logical relations inherent in the mind of the individual actor, and the attempt to apply these insights to aggregates of things.

The quantity of money and its effect on prices, is not exactly the same thing as the logical relationship of various “datum” in the mind of the acting person.

And thus, as Hayek writes: "in the transition from the analysis of the action of an individual to the analysis of the situation in a society the concept has undergone an insidious change of meaning."

6

Bump!

7

The Quantity Theory of Money is not an Austrian concept, and its not an axiom. Its really trivial because its true by definition.

The second statement here follows from the first so only the first is an axiom.

I think what you’re asking relates to this:

Economics, and here Rothbard follows Ludwig von Mises, sets out from the axiom that humans act, i.e., that they pursue their most highly valued goals with scarce means. Combined with a few empirical, and empirically testable assumptions (such as that labor implies disutility), all of economic theory can be logically deduced from this indisputable starting point. (Source)

So the question is, what are these “few empirical assumptions”?

  1. Labor implies disutility.
  2. ?
8

It seems to me that if we make a statement such as the QToM (especially the “other things being equal” clause of it) and assert it as praxeologically true, we are making the same mistakes that Neoclassicals and Chicago-Schoolers make when they assume unrealistic things like Perfect Competition and Perfect Knowledge. It seems to break us away from our Mengerian, causal-realist roots.

I’ll address this issue because it’s important I think.

Say you have a compass. Now I know nothing about compasses so Im going to make up a few assumptions. After all, i’m just giving an analogy.

Let’s say that compasses point in the direction of the north pole ideally, but local magnetic effects can make them swerve say half a degree here and there.

A guy buys a compass, and he sees it points directly EAST. He takes it back to the store and says, “This compass is obviously very sick. It’s pointing East instead of North. I want my money back.”

The guy in the store says, “Sorry Sir, no compass points North. That is unrealistic, it assumes perfect local conditions. You are breaking away from your realistic roots.”

I think you get the idea. If we know what happens under ideal conditions, it can give us a clue about what’s what in the real world as well

9

Can anyone help me with this? One empirical assumption might be “people prefer more units of a good to less” and another might be “people prefer satisfactions in the present to satisfactions in the future”. But I am not sure - the second one, especially, seems to follow directly from the action axiom.

Perhaps another one might be “in a complex economy, one commodity will tend to become a money”. What do you think?

10

There are humans

11

Good one.

12

I can provide a two important ones:

  1. The distribution of abilities among individuals is non-uniform, uneven.

  2. Successful completion of some tasks necessitates that multiple individuals combine their mental and or or physical strength.

If neither the first nor the second condition were existent, division of labor, society, morality, benevolence, compassion et cetera would not be existent.

13

There is diversity among human beings.

There is a diversity of environmental conditions.

(One or both of these two are required for the division of labor)

14

You beat me to it, I . Ryan. Thanks.

15

Trulib:

I think there is some confusion that may be owing to a mixture of various conceptions about the logical procedure of praxeology. The various conceptions different scholars hold of the nature of praxeology are not identical. Rothbard advocated praxeology (as economics, not as a general science), but he conceived it differently from Mises. For example, the phrase “action axiom” or “axiom of action” rarely if ever appears in Mises’s writings. Things would probably be more clear if you were referring to a particular author’s passage, and then the examples he/she gives in applying those ideas. Then we could examine how the author’s grounding principles are consistent with, or contradict, his given examples or illustrations.

The way you are phrasing the question makes it appear as though there is a singularly agreed upon doctrine concerning the science of human action, and this is not the case.

This idea may help to show how various conceptions of praxeology may differ:

Let’s take the law of marginal utility as expressing a relationship between an actor coming into possession of a unit of supply, and some experience he has that accompanies the coming into possession of it. So the law says something like: If actor A comes into possession of X, then actor A has such and such an experience (e.g., he experiences a “decrease in the value” of a unit).

So this is our formal construct, gleaned from contemplating the nature of action.

Now we can use this law to understand what is going on “out there” in “reality.” If this law holds, then when the central bank prints additional units, by the law of marginal utility, anyone coming into possession of those units experiences what the law instructs.

We can call the central bank printing more money our “supposition.” Whether the central bank indeed prints more money or not is a question of economic history and not a question of economic theory.

But you can see that this supposed thing is an event or object, not a law, principle, or generality.

Your #1, #2, and #3 above seem to be of the nature of a law, principle, or generality, but you are implying or stating that they are “empirical assumptions.”

This is not exactly the same thing as what I described as a “supposition” which refers not to a law, principle, or generality, but to an event or object that we suppose or assume.

My point is that therefore, we have to be conscious of the fact that there are various conceptions of the nature and procedure of praxeology.

We can’t simply assume that various authors are all in agreement as to what praxeology is or what it does.

I think it is more instructive if we ask: “According to person X, praxeology is abc, and he provides xyz examples. How does this work?”

When we begin with the question: “Praxeology is X, and also xyz. How does this work?” We begin or inquiry with a false premise.

16

My definition of praxeology comes from Rothbard: “The formal implications of the fact that men use means to attain various chosen ends”, i.e. the implications of the action axiom. I’m not aware of any substantive difference between Mises and Rothbard’s approach to economics (i.e. praxeology). Mises uses action as an axiom, no?

OK. So here we are applying the lessons of praxeology (in this case, law of marginal utility) to a given set of real world circumstances. My question could be re-phrased: what “real world circumstances” do we take as given? One is that labor implies disutility, as Rothbard states:

This is from chapter 1, and this “empirical observation” is taken as a given for the rest of MES, presumably.

“Empirical assumption” is not my term, I was quoting Hoppe, and Rothbard uses it as well.

I understand your point though - thanks. My #1 and #2 both follow from the action axiom; they are part of our “formal construct”.

#3 is different though, and I think it counts as an empirical observation in the same sense as the disutility of labor, or the existence of a central bank. Rothbard shows in chapter 3 why and how money comes about, and then from chapter 4 onwards, takes as given that a money has developed.

17

Trulib:

You make good points. There is a large overlap between the three authors you mention on the idea of the disutility of labor, and all three considered that there was such a thing as a human action axiom that could serve as a grounding axiom of a deductive system.

I would argue that even in those two areas of overlap, there are already subtle differences in conception(s), such that the farther one extends reasoning from those subtly different conceptions, the more pronounced the differences will be.

“My definition of praxeology comes from Rothbard: “The formal implications of the fact that men use means to attain various chosen ends”, i.e. the implications of the action axiom. I’m not aware of any substantive difference between Mises and Rothbard’s approach to economics (i.e. praxeology).”

I think it is important to recognize at least two periods of Rothbard scholarship. The early Rothard was a student of Mises and of Mises’s praxeology (when he wrote MES), while the mature Rothbard came to be largely dissatisfied with Mises’s philosophy and rejected not only Mises’s utilitarianism (I mean this in the sens of ‘egoistic’ utilitarianism), but also rejected the definition you provide above (when he wrote TEoL).

Consider that both dishonesty and coercion can be considered means to attain various ends. A person can lie in order to gain entrance to a club, or a person can coerce another person in order to gain access to that same club. The means of coercion is possibly the central concept of libertarian ethics. But Rothbard rejected praxeology as in any sense useful or appropriate for formally analyzing these “ethical” means:

“This procedure is perfectly proper for the formal science of praxeology, or economic theory, but not necessarily elsewhere.” (TEoL p.12)

Rothbard’s position came to be that actually, one cannot (or should not) examine the formal implications of the fact that men use means to attain ends except when considering market phenomena.

Mises’s position was largely as your quote, but the mature Rothbard position rejects the quote you provide, and economics and praxeology become largely synonymous. The Rothbardian re-formulation would be something like:

“In market and market-related transactions, man uses means to attain his ends, but not necessarily in his ethical conduct. Praxeology is the formal analysis of man using means to attain ends in market transactions as distinct from his ethical conduct.”

Thus, Rothbard’s definition of praxeology is essentially “logical reasoning with respect to market transactions,” while Mises’s definition of praxeology is “the formal analysis of all forms of human action.” For Rothbard, praxeology is simply economic science as practiced by a particular school. For Mises, praxeology is a general science of human goal-directed activity.

As another example of the relatively significant difference in approaches and conceptions, consider the brief passage you quoted previously:

“Combined with a few empirical, and empirically testable assumptions (such as that labor implies disutility)”

Here is a passage from Mises (HA, chapter 2, section 10, The Procedure of Economics):

“There is no phenomenon that introduces itself as disutility of labor. There are only data of experience which are interpreted, on the ground of aprioristic knowledge, to mean that men consider leisure…”

“We infer from this fact that leisure is a valued good and that labor is regarded as a burden. But for previous praxeological insight, we would never be in a position to reach this conclusion.”

I interpret Mises as using the idea of aprioristic knowledge and previous praxeological insight equivalently here.

Essentially what the Hoppe quote is implying is that we can observe the disutility of labor as an empirically testable feature of objective reality, whereas what the Mises quote is implying is that we approach the observable data of our experience with praxeological knowledge that gives meaning to that observable data.

So while both authors are addressing the same phenomenon, they are giving differing accounts of the nature and source of that phenomenon.

Here is what I was trying to convey in my last post:

One conception of praxeology is something like:

  1. Praxeology is formal analysis + empirically testable assumptions

the other is something like:

  1. Praxeology is formal analysis + interpreting empirical data (observable data) on the basis of formal analysis

Those two conceptions are not identical.

My point was that if we are using #1 as our definition or conception of praxeology, this conception or definition is not universally held. There are subtle but important differences between Mises’s formal/analytical approach, and the approach that explicitly attempts to combine formal/analytical notions and objective/empirical notions in the same theoretical construct.

#3: “In a complex economy (A), one commodity will tend to become money (B).”

“#3 is different though, and I think it counts as an empirical observation in the same sense as the disutility of labor, or the existence of a central bank. Rothbard shows in chapter 3 why and how money comes about, and then from chapter 4 onwards, takes as given that a money has developed.”

I agree that #3 is different from #1 and #2. In #1 and #2, we make no reference to empirical observation, and we imply that they are derivable from contemplating the nature of action. In #3, we imply that we can observe a regularity of sorts.

I might argue that #3 is what Menger would refer to as an empirical law; a regularity that either exhibits exceptions, or at least one in which exceptions are possible:

"A glance at the theoretical sciences teaches us rather that the regularities in the coexistenc and in the succession of phenomena are in part without exception; indeed they are such that the possibility of an exception seems quite out of the question. However, some are such that they do indeed exhibit excpetions, or that in their case exceptions seem possible. The first are called laws of nature, the latter empirical laws.

(Investigations into the Method of the Social Sciences, Book 1, Chapter 3.)

Menger then goes on to say that what are called laws of nature are more accurately referred to as exact laws.

A law is a statement of regularity in the relationship between phenomenon A and phenomonon B.

#3 says that when A appears (a complex economy), then B will appear (one commodity will be money). There is a regular or constant relation asserted.

Then the question is whether this relationship is without exception (exact law) or exceptions are possible (empirical law).

Going back to our two conceptions of praxeology then, we can re-phrase them as:

  1. Praxeology is exact laws + empirical laws

  2. Praxeology is exact laws + interpreting the (empirical) data of experience in terms of exact laws

I think it is important to distinguish clearly between the conception of an empirical observation conceived as a singular observation of an event or object, and the assertion of a regularity between two such events or objects, A and B.

#3 “in a complex economy (A), one commodity will tend to become money (B).”

I don’t think this can be considered an empirical assumption or observation because the definition of what constitutes, for example, “a complex economy” must be defined before-hand with reference to some theory, before we can then turn to experience and interpret that experience as a “complex economy.”

For example, why isn’t a complex economy one in where there are a huge number of commodities in service as money? This would seem to be an extremely “complex” economy, and one where there is only one commodity used would seem to be a very simple economy.

This indicates that what we will refer to as a complex economy and as a simple economy is not a feature of the various objects that we observe moving around, but is rather a feature of the theory we are using to interpret those objects.

Mises and Hayek will make the same argument with respect to money. There are round discs of metal which are the subject matter of natural science. Then there is, paraphrasing Mises in the quote above: “…data of our experience which are interpreted, on the ground of aprioristic knowledge, to mean that those round metal discs are money…”

For references, see: John Searle, Minds, Brains, and Science, chapter’s 4 and 5, and Hayek, Individualism and Economic Order, essay: “The Facts of the Social Sciences.”

Thus, I would make two points about #3:

  1. It is more accurately understood as an empirical law

  2. It is misleading to refer to this law as empirical, in the sense that both A and B cannot be consistently conceived as being features of “empirical reality,” but instead, are only consistently conceived as deriving from what Mises refers to as aprioristic knowledge.

I’m going to argue that the whole idea of the disutility of labor is mistaken and a dead-end path, and that what we are referring to as “labor” is simply action, and nothing more.

Here is my reasoning:

I don’t believe we can limit our concept of labor to labor in a social setting (employer/employee relationship). When an isolated individual hunts or farms for his provisions, that is labor also. I will assert that the “disutility” involved in such labor refers to the fact that when one considers doing the specified activity, the perceived costs of that activity, speaking loosely, “give rise to hesitation” whether to proceed with the planned activity.

That one undertakes the activity, “demonstrates” that the activity has utility (not disutility) for the individual concerned.

What makes that activity “labor” with “disutility” is the fact considering that activity gives rise to hesitation due to the costs expected to be incurred.

But then, this same idea holds for (I will argue) all actions, as there are costs incurred in all actions. A person experiences the same phenomenon, for example, before a workout, or even before getting up off the couch. But if we are going to include these activities as various forms of labor, then eventually it will become clear that what we are referring to is an aspect of action; that there is a negative, painful, displeasing, etc., aspect of each and every action.

If this argument holds, then we could maintain that the idea of the disutility of labor is an idea that resulted from a mixture of the older objective concepts (e.g. the idea that there is something out there called labor that we can observe and that has disutility), and the pure theory of action that deals with the universal (not accidental or particular) aspects of human action.

“Praxeology is a theoretical and systematic, not a historical, science. Its scope is human action as such, irrespective of all environmental, accidental, and individual cirumstances of the concrete acts. Its cognition is purely formal and general without reference to the material content and the particular features of the actual case.” (HA, 3rd rev. p.32)

“Praxeology is not concerned with the changing content of acting, but with its pure form and its categorial structure. The study of the accidental and environmental features of human action is the task of history.” (HA, 3rd rev. p.47)