Mises, Hayek, and market theory: A Priori or Empirical?

Economics Economics Questions
1

This issue has been discussed previously on the forum.

Here is a newly revised summary of my argument that Hayek overlooked the implications of his own ideas as expressed in “Economics and Knowledge” and “The Facts of the Social Sciences.”

Mises, Hayek, and the A Priorism of the Market: Why Mises was right

Mises and Hayek disagreed about the nature of market theory:

What I see only now clearly is the problem of my relation to Mises, which began with my 1937 article on the economics of knowledge, which was an attempt to persuade Mises himself that when he asserted that the market theory was a priori, he was wrong; that what was a priori was only the logic of individual action, but the moment that you passed from this to the interaction of many people, you entered into the empirical field.(Hayek on Hayek, p.72)(emphasis added)

Hayek is referring to his essay in Individualism and Economic Order, page 35:

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 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.(emphasis added)

Here Hayek makes a distinction between the market (an interaction of a number of people) and the logic of individual action. Hayek agrees that the logic of individual action is a priori, but he argues that market theory is empirical, and that Mises was wrong to believe that market theory is a priori.

To understand the issue involved, and to see how Hayek overlooked the implications of his own ideas, we have to consider two essays from his book Individualism and Economic Order: “Economics and Knowledge” and “The Facts of the Social Sciences.”

In “The Facts of the Social Sciences,” Hayek outlines his concept of the Pure Logic of Choice:

From the fact that…we have to define both the objects of human activity and the different kinds of actions themselves, not in physical terms but in terms of the opinions or intentions of the acting persons, there follow some very important consequences…we can, from the concepts of the objects, analytically conclude something about what the actions will be. If we define an object in terms of a person’s attitude toward it, it follows, of course that the definition of the object implies a statement about the attitude of the person toward the thing. When we say that a person possesses food or money, or that he utters a word, we imply that he knows that the first can be eaten, the second can be used to buy something with, and that the third can be understood—and perhaps many other things.(emphasis added)

Here, Hayek is describing how he conceives of the Pure Logic of Choice. In social science, it is not the physical characteristics of an object that give that object social meaning, but rather the attitude of the acting person toward that thing.

Hayek indicates how this analytic method applies. The attitude a person takes toward an object has a hidden implication. We can analytically conclude something about a person’s action(s) based on that person’s opinion or attitude about the object before him. As Hayek writes:

When we say that a person possesses food or money, or that he utters a word, we imply that he knows that the first can be eaten, the second can be used to buy something with, and that the third can be understood—and perhaps many other things.

This is the Pure Logic of Choice which according to Hayek is:

…the system of tautologies—those series of propositions which are necessarily true because they are merely transformations of the assumptions from which we start.

Hayek argues in “The Facts of the Social Sciences” that it is not the physical properties of a thing that make it an object of the social sciences, but rather the attitude a person takes toward a thing.

Further, once a person takes an attitude toward a thing, his attitude, belief, or opinion, entails further necessary implications which we can analyze and from which we can draw further conclusions. These analytical conclusions are the exact laws (Menger), a priori propositions (Mises), or necessary truths, as Hayek refers to them. Exact laws, a priori propositions, and necessary truths, are, respectively, the focus of theoretical exact science, praxeology, and the Pure Logic of Choice.

Hayek has granted that based on what the actor believes is before him (food, money, a word, etc.) we can analytically conclude something else, and these two things taken together constitute a necessary truth (a priori proposition, exact law, etc.).

The question we ask is this:

If the object before an actor is a market, why are there no analytical implications to the actor’s attitude in this case?

Hayek has said that what makes an object a social object is not its physical characteristics. It is the attitude that an actor takes toward something that determines whether an object is a social object:

If we wish, we could say that all these objects are defined not in terms of their “real” properties but in terms of the opinions people hold about them. In short, in the social sciences the things are what people think they are. Money is money, a word is a word, a cosmetic is a cosmetic, if and because somebody thinks they are.

Once an actor takes a certain attitude toward an object, based on this, we can form a necessary truth by analytically concluding what must also be part of the attitude the actor takes.

Hayek also argues that market theory is empirical and not a priori.

But if a market is a social object (social process, social phenomenon, etc.), then according to Hayek, as a social object it cannot be defined in terms of its physical characteristics. A market can only be defined in terms of the attitude of the person(s) concerned. Hayek writes about the “objects of human activity which constantly occur in the social sciences”:

It is easily seen that all these concepts…refer not to some objective properties possessed by the things, or which the observer can find out about them, but to views which some other person holds about the things. These objects cannot even be defined in physical terms, because there is no single physical property which any one member of a class must possess. These concepts are also not merely abstractions of the kind we use in all physical sciences; they abstract from all the physical properties of the things themselves.(emphasis in the original)

If what Hayek writes is true, then a market, as a social object, is to be defined not in terms of its physical properties, but rather in terms of the attitudes or opinions of the persons concerned. In short, a market is a market if and because somebody thinks it is.

If a market is defined in terms of the opinions and attitudes of the persons concerned, then why are there no analytical conclusions we can draw from this particular attitude a person takes? Why can we draw an analytical conclusion (a tautological transformation) from the fact that a person thinks an object is money, a word, or a cosmetic, but not from the fact that a person thinks something is a market?

Why isn’t market theory a priori by virtue of the Pure Logic of Choice when the object before a person is a market, and we draw analytical conclusions (necessary truths) from the actor’s attitude or opinion in this case?

In this sense, by Hayek’s own reasoning, the theory of the market would seem to be a priori not empirical.

The question is whether a nonarbitrary criterion exists for distinguishing those attitudes of an actor from which we can draw analytical conclusions, from those attitudes of an actor from which we cannot draw analytical conclusions. Hayek clearly argues that analytical conclusions can be drawn from the attitude of the actor when the object before the actor is food, money, or a word. But Hayek seems to overlook other kinds of social objects such as markets, language, law, property, etc. If, for example, the market is a social object, then according to Hayek it cannot be defined in terms of its physical properties, but must be defined in terms of the attitudes of the persons concerned. The same principle should hold for language, law, and property, to the extent these are social objects—objects of the social sciences and not objects of the physical sciences.

If things such as markets and property are social objects defined in terms of the opinions of acting persons, then why can no analytical conclusions be drawn from the concepts of these objects, something Hayek claims can be done with respect to the social objects food, money, and words? What principle distinguishes two distinct classes of social objects such that from the conceptions of class A we can draw analytical conclusions, but from the conceptions of class B we cannot draw analytical conclusions?

If Hayek or his supporters cannot provide a principle for distinguishing between these two classes of social objects, then we must assume, based on what Hayek argues in “Economics and Knowledge” and “The Facts of the Social Sciences” that what holds true for one class of social objects holds true for all classes of social objects. If in the Pure Logic of Choice we may draw analytical conclusions from the social concepts food, money, and words, then in the Pure Logic of Choice we may draw analytical conclusions from the social concepts market, language, law, and property.

Absent a nonarbitrary principle that distinguishes two classes of social objects and precludes us from drawing analytical conclusions from one class of concepts, we must conclude that the Pure Logic of Choice applies to the market as it does to other social objects, and in this sense market theory is a priori.

2

In other words, we may see the market from the point of view of “individual action”, which he called “a priori”, by seeing the ‘market’ as objects of the actions of individuals, instead of as an entity in itself. Is that an accurate characterization of what you are saying in your post?

Based on what you are saying here and what you quoted of him, he appears to have changed his point of view at a certain point from that of individual actors to that of collections of actors making up markets, causing the method of his inquiries to change, and then declared that, at that point, the method changes. But, if we just keep the same point of view, the method does not change, I guess. I think that you were saying what I am saying here when you wrote that we need to see the market as an object of the action of the actor; that is, when you take ‘the market’ as an object of the action of an individual, you move back into what Hayek considered a point of view that is ‘a priori’. So why did he decide to change his point of view at that moment?

Either way, though, I see no reason why switching points from one of those points of view to the other is ever “incorrect” just because of that. In my estimation, we just need to try both of them out and then see what happens. I do not remember what lecture this was in; but I remember Gene Callahan discussing that he did not think that it made sense to say things like that looking just at movements in the external world are just “incorrect” methods for understanding how humans ‘behave’ but instead that they just happen to be pretty sterile at this moment in comparison to seeing it from the point of view of the internal worlds of the people involved, which is what ‘subjectivist’ economics does.[1] And that way of seeing things really made sense to me. I think that Mises held a similar view; for his ‘justification’ of his method was basically saying “it would be crazy to say that, for understanding the movements of people, the method of economics or whatever does not work and the point of view of natural science does”:

With such a weak justification of his method, then, what justified his serious attacks against other thinkers posing the other method? Why did he not just say “well, it does not seem to be working; so I will just stick with what I am doing”? Well, first of all, he did that a lot. But, second of all, when he did not but instead decided to launch more direct attacks against those people, what justified it was, from what I have seen, one of two things: either (a) they thought that the justification for their method was more than just its expediency, which contradicts what I said that Gene Callahan was saying and what I quoted from Mises, or (b) they acted like they were doing a method opposed to what Mises was doing but they actually were not, they were smuggling in categories of action into what they pretended was just natural science. (Anyway, this passage might have been a bit of a tangent.)

So, in light of that, I do not think that it makes sense to just say “Hayek was wrong about describing markets being not a priori”. I think that it makes more sense to just point out that he changed his point of view and that his assertion that Mises was wrong, indeed, his assertion that he and Mises were in a fundamental disagreement, was wrong, and that, instead, they were just seeing things from two different points of view. But, again, why did he so strongly feel the need to switch his point of view at that moment that he thought that no other point of view existed, indeed, that he did not even switch his point of view? I have no idea.

(With this, I am still supporting a rough template of what I was trying to do in the other thread; I still think that it makes sense to see groups of people as individuals, too. Methodological individualism always holds; the question is just this, what are we considering to be the individual at this moment? By the way, I think that Hoppe was doing a similar sort of thing in this lecture. What do you think about his method in that lecture? Do you think that it makes sense? Do you think that it is similar to what I was doing in that other thread?)

(Just my tentative, disorganized thoughts about this.)

[1] I am still trying to figure out how to answer your challenges of how to define ‘internal world’ and ‘external world’ in a non-circular way; but, either way, I am pretty confident that it is an important division.

3

I am not sure about your idea that the market is a ‘social object’. The market being a spontaneous order can not correctly be called an object. No man comes across a market and uses it in the decisions in the same way that one uses iron ore or stock tips. The point Hayek is making about peoples attitudes is that peoples actions will be based on their perceptions, not any kind of objective reality. And that it is that perception that we should look to in explaining individual action. Can a ‘market’ really be an object of individual human action? Isn’t a market rather a result of individual human action?### While a belief about ‘the market’ in the abstract may be a belief that affects his behaviour I do not see why it is different in any substantive way to his belief about other things. Like for example the idea that it will rain tomorrow.### If Hayek’s claim is that the logic of choice can not be taken beyond the individual then how does the individuals belief about something challenge that statement?

4

The actions of individuals are a priori because to the extent that we wish to understand them, we can only do so by making reference to means, ends, intentionality and other such concepts knowledge of which we have derived from knowledge of our own mind. Indeed, insofar as we are able to communicate and understand other human actors, we can do so precisely because they, for evolutionary reasons, have a mind that works in the same way as ours. Your argument would imply that we should seek to explain animal behaviour in terms of means and ends simply because “[there] exists for distinguishing those attitudes of an actor from which we can draw analytical conclusions, from those attitudes of an actor from which we cannot draw analytical conclusions”, fortunately, I think this is an argument that most educated people would reject.

The market is not an actor, it is a collection of actors, and one could make a good argument for it being more than that. To explain market outcomes one must make reference to a whole host of other empirical facts and use other theoretical tools. Indeed, as another poster pointed out, the market is a spontaneous order, the job of the social scientist is not to elaborate useless tautologies about human action but to explain how this spontaneous order emerges (e.g. relative price signals guiding market actors) and why some spontaneous orders take certain paths and others take others (e.g. North’s work on economic history).

5

Am I not an “educated pe[rson]”? For I do not know what that even means.

6

Anybody who disagrees with Giles must take a class on economics. [/sarcasm]

7

I. Ryan:

“In other words, we may see the market from the perspective of “individual action”, which he called “a priori”, by seeing the ‘market’ as objects of the actions of individuals, instead of as an entity in itself. Is that an accurate characterization of what you are saying in your post?”

Yes. Thank you for seeing this. Good point about “instead of as an entity in itself.”

“Based on what you are saying here and what you quoted of him, he appears to have changed his point of view at a certain point from that of individual actors to that of collections of actors making up markets, causing the method of his inquiries to change, and then declared that, at that point, the method changes. But, if we just keep the same point of view, the method does not change, I guess. I think that you were saying what I am saying here when you wrote that we need to see the market as an object of the action of the actor; that is, when you take ‘the market’ as an object of the action of an individual, you move back into what Hayek considered a point of view that is ‘a priori’.”

Yes, that’s right. I will argue that this is essentially the same thing Rothbard did, except with ethics theory, rather than market theory.

The switch is from considering things from the point of view of the individual actor, over to considering things, as Hayek writes, in terms of their “real” properties. From considering an object as the individual concerned sees it, to considering an object “as it is in itself.”

“Either way, though, I see no reason why switching points from one of those points of view to the other is ever “incorrect” just because of that. In my estimation, we just need to try both of them out and then see what happens.”

OK However, Hayek claimed Mises was wrong in asserting study of the market is a priori, just as Rothbard claimed that praxeology is inappropriate for the study of the ethical side of human activity (interpersonal relations, social relations, politics, etc.). My main point was to demonstrate that by Hayek’s own reasoning, we can draw analytical conclusions with respect to all social phenomena, not just the limited number he mentions in his essay (food, money, words, etc.). Hayek was wrong in claiming Mises was wrong. Hayek gets mileage out of his claim that he has shown where Mises went wrong:

“Mises never could free himself from that fundamental philosophy, in which we have all grown up, that reason can do everything better than mere habits. From this he could never loose himself.” (Hayek on Hayek, p.73)

This is basically an obituary. Hayek is saying that since the logic of action is severly limited in its application (limited to concepts such as food, money, and words), we need to go beyond Mises’ outdated beliefs in order to study the interesting social phenomena of markets, law, language, property, etc…

But this notion is based on Hayek missing the implications of his own ideas. I don’t think Hayek realized the mistake he was making. Because of his mistake, he seems to have believed that Mises’ approach was a kind of relic of the past.

This point is important enough. But it is also important to realize that if Hayek is basing is concept of empirical study on an objective conception of the market (a conception of the market based on its “real properties”, or a conception of the market as “a thing in itself” as opposed to something that derives from or is a function of the attitudes of the actors concerned) then this calls the entire notion of empirical market study into question. Because Hayek has clearly argued that social objects cannot be defined in terms of their “real” properties or their physical attributes, and he has argued that social objects can only be defined in terms of the opinions, intentions, attitudes, etc., of the acting persons.

This means that we can only find the market (as a social object) in the opinions and attitudes of the persons concerned. Is this what Hayek has in mind in his notion of empirical market study?

“Economics is not about things and tangible material objects; it is about men, their meanings and actions. Goods, commodities, and wealth and all the other notions of conduct are not elements of nature; they are elements of human meaning and conduct. He who wants to deal with them must not look at the external world; he must search for them in the meaning of acting man.” (HA, 3rd. Rev. ed. p.92)

“…what justified [Mises’] serious attacks against other thinkers posing the other method?”

I think it was the insight Mises had that ultimately we will not succeed if we look for economic phenomena in the empirical world as opposed to in the meaning of acting man.

“So, in light of that, I do not think that it makes sense to just say “Hayek was wrong about describing markets being not a priori”. I think that it makes more sense to just point out that he changed his point of view and that his assertion that Mises was wrong, indeed, his assertion that he and Mises were in a fundamental disagreement, was wrong, and that, instead, they were just seeing things from two different points of view.”

Here I think it is important to note that Hayek mis-applied his own principles. He is arguing that social phenomena cannot be defined in physical terms, or in terms of their “real” properties, but must be defined in terms of the opinions and attitudes of the actors concerned.

“…all these objects are defined not in terms of their “real” properties but in terms of the opinions people hold about them. In short, in the social sciences the things are what people think they are. Money is money, a word is a word, a cosmetic is a cosmetic, if and because somebody thinks they are.” (“The Facts of the Social Sciences”)

This notion is in conflict with the notion of empirical market study. There is a huge problem for Hayek here. I don’t think people realize the full extent of Hayek’s predicament.

Regarding the Hoppe method, are there any written versions? Maybe you can start a thread on this idea.

“I am still trying to figure out how to answer your challenges of how to define ‘internal world’ and ‘external world’ in a non-circular way; but, either way, I am pretty confident that it is an important division.”

I will continue to argue that trying to base social science on the internal/external distinction is a mistake. To the extent Mises was successful, he was successful because he avoided conceiving things this way, and instead conceived things in terms of the state an actor is confronted with, and its relation to the actor’s desire for a different state:

“Action results from the fact that the individual “actor” believes that there are other states of being preferable to the one in which he is at present, and from this belief that he may take certain steps which will bring him to a more satisfactory state.”

(that quote is from Rothbard circa 1950 while I assume he was a student of Mises. Article: “Praxeology: Reply to Mr. Schuller”)

“Action is the search for improvement of conditions from the point of view of the personal value judgments of the individual concerned…Man’s aim is to substitute what he considers a better state of affairs for a less satisfactory one. He strives for the substitution of a more satisfactory state of affairs in place of a less satisfactory state of affairs. And in the satisfaction of this desire, he becomes happier than he was before.”(The Free Market and its Enemies, p.14)

These defintions and characterizations of human action do not refer to physical attributes (internal, external, physical bodies moving in phyiscal reality, etc…). In general, they do not refer to content. The defintions refer to a state the actor is confronted with, and the actor’s desire for a different state.

This view of things is the same thing Hayek is arguing for in his essay “The Facts of the Social Sciences.” The fundamental concepts of social science are not those of location or spatial relation. The fundamental concepts of social science are something like “presence” and “desire.” They make no reference to position, location, etc.

8

Faustus:

My understanding of Hayek’s general argument would be this:

If a market is something differentiable from other things, then how is a market distinguished or differentiated from other things?

I understand Hayek to argue that, as a social object or social concept, a market cannot be defined in terms of its physical attributes or “real” properties. These are the terms he uses.

What is a “market” about the local farmer’s market, is not to be found in the physical characteristics, but in the opinions of the person(s) concerned.

Paraphasing Hayek:

“A market is a market if and because somebody thinks it is.”

If this is not a correct understanding or application of Hayek’s ideas (if Hayek’s argument does not apply to markets), then I assume we will be maintaining that some things are social objects only because someone thinks they are, but there are other social objects which “really are” what a person thinks they are. These other things have a “real” or “empirical” existence not dependent on the attitude of the actor(s) concerned.

What we are saying is that there are some social phenomena (markets, law, language, property) that have “objective” qualities such that they can be defined “objectively,” and without reference to the opinions of the person(s) concerned.

I.e., there are some social objects, concepts, processes, phenomena, whatever…, to which Hayek’s argument in “The Facts of the Social Sciences” does not apply.

Then, these objects are differentiable and definable by attributes other than the opinions and attitudes of the actor(s) concerned.

If this is the case, then those who disagree that Hayek’s argument applies to all social phenomena should be able to provide a method of distinguishing or defining these other objects other than by reference to the actors concerned.

What are the physical attributes of a market by which we recognize something as a market and not something else?

9

Giles:

“The actions of [other] individuals are a priori because to the extent that we wish to understand them, we can only do so by making reference to means, ends, intentionality and other such concepts knowledge of which we have derived from knowledge of our own mind.”

Yes, this is consistent with what Hayek is arguing.

“Indeed, insofar as we are able to communicate and understand other human actors, we can do so precisely because they, for evolutionary reasons, have a mind that works in the same way as ours.”

No, this it not at all what Hayek is arguing. He is not talking about evolution or about the way another person’s mind works. It would be more consistent with what Hayek argues to say that we are able to communicate and understand other human actors because anything we interpret as a communication from another actor we interpret through the categories of our own mind. Your alternative notion is totally foreign to what Hayek is arguing.

"Your argument would imply that we should seek to explain animal behaviour in terms of means and ends simply because “[there] exists for distinguishing those attitudes of an actor from which we can draw analytical conclusions, from those attitudes of an actor from which we cannot draw analytical conclusions”

I don’t understand your point.

“The market is…a collection of actors” “the market is a spontaneous order”

I don’t think you have a determinate and nonambiguous definition of what a market is.

“…the job of the social scientist is not to elaborate useless tautologies about human action but to explain how this spontaneous order emerges (e.g. relative price signals guiding market actors) and why some spontaneous orders take certain paths and others take others (e.g. North’s work on economic history)…”

OK I’m going to stop doing what I previously believed was social science, and begin doing what you believe is social science.

10

“I understand Hayek to argue that, as a social object or social concept, a market cannot be defined in terms of its physical attributes or “real” properties. These are the terms he uses”

Yes quite right, a market is purely formal in nature.

“What is a “market” about the local farmer’s market, is not to be found in the physical characteristics, but in the opinions of the person(s) concerned”.

Farmers market?? No. A farmers market is not a market in the economic sense. We must treat the physical events of the farmers market or supermarket or ebay or whatever from the abstract nature of a ‘market’.

When people think of a farmers market they think of a bunch of stall holders in a given area selling there wares. A ‘market’ is purely formal or abstract in nature. The two are distinct. It is obfuscation to confuse the terms.

So when a person comes across a farmers market he is fact coming across a group of farmers/stallholders not our abstract market. That group of stallholders is a market in the colloquial sense because he thinks he can go and buy stuff from the people gathered. If he made a mistake and thought it was something else, then in his mind and for his purposes that thing is not a market. For everyone else who is not mistaken it still is a place they can buy stuff and will be treated as such by them.

“The main reason is that such orders as

that of the market do not obtrude themselves on our senses but

have to be traced by our intellect. We cannot see, or otherwise

intuitively perceive, this order of meaningful actions, but are only

able mentally to reconstruct it by tracing the relations that exist

between the elements. We shall describe this feature by saying that

it is an abstract and not a concrete order”(Law Legislation and Liberty, vol-1 p38)

In Hayek’s example of the Hammer, Hayek states that what makes a hammer(p27 The Counter Revolution of Science) is that it fits into the class of a hammer, that is that it is the intention, or suitableness of an object for a particular purpose that puts it in that class in peoples minds. A market has no purpose. It is a spontaneous order. Spontaneous orders are the result of human action but not human design. It is created by many individual purposes forming consistent orderly regularities. This is what is meant by its formal nature.

So a market can never be an object of human intention because no man can wield it to any particular purpose. It is just not that kind of thing.

It seems to me that this is your mistake. Confusing a concrete for an abstract order. A mistake that Hayek called the constructivist fallacy.

11

Read this, especially the boldfaced lines:

Was he incorrect there?

12

Then how do we apply what we know from economics to “the real world”?

13

How would the hammer be considered suitable for a certain purpose without being considered so prior to its classification?

The distinction between human action and design has always seemed specious to me. Individuals are purposeful actors and a market exists only at the point of voluntary exchange between those actors. It would seem therefore that it is designed by the consenting actors.

14

Yes, the only distinction is that between centralized design and decentralized design.

15

It depends what you mean. Supposing that one man legitimately owned the entire earth then his decisions would be centrailsed yet pareto optimal. Whereas you could have mini states where one man lords it over a village, there would be more decentralised design than previously yet thus would not be pareto optimal and suffer from the inherent problems of monopoly. Thus the most meaningful distinction is one of competitive versus monopolistic design.

16

I think it is just semantics about the word design. Hayek was keen to make the distinction between spontaneous and made orders. A made order is specifically created with a goal, end, or purpose. Hayek uses the word design for this. In opposition to a spontaneously generated organisation. If you want to call the market ‘designed’ by is many actors you can. But personally I would not. Design generally carries the connotation of a controlling mind which is not present in spontaneous generations and could cause unnecessarily confusion.

“How would the hammer be considered suitable for a certain purpose without being considered so prior to its classification?”

I am not quite sure what you are getting at. This is the section of text I took the example from. You might find your answer here

“But we not only know this. It would be impossible to explain or

understand human action without making use of this knowledge.

People do behave in the same manner towards things, not because

these things are identical in a physical sense, but because they have

learnt to classify them as belonging to the same group, because they

can put them to the same use or expect from them what to the people

concerned is an equivalent effect”

“This is best shown by an example for which we can choose almost

any object of human action. Take the concept of a “tool” or “instrument,”

or of any particular tool such as a hammer or a barometer.

It is easily seen that these concepts cannot be interpreted to refer to

“objective facts,” i.e., to things irrespective of what people think

about them. Careful logical analysis of these concepts will show that

they all express relationships between several (at least three) terms,

of which one is the acting or thinking person, the other some desired

or imagined effect, and the third a thing in the ordinary sense. If the

reader will attempt a definition he will soon find that he cannot give

one without using some terms such as “suitable for” or "intended

for" or some other expression referring to the use for which it is designed

by somebody.20 And a definition which is to comprise all instances

of the class will not contain any reference to its substance, or

shape, or other physical attribute. An ordinary hammer and a steamhammer,

or an aneroid barometer and a mercury barometer, have

nothing in common except the purpose 21 for which men think they

can be used.” (The counter revolution of science p26-27)

17

“Then how do we apply what we know from economics to “the real world”?”

All that is meant to mean is that the physical marketplace with its people and stalls and sign saying FARMERS MARKET is not as an entity the ‘market’.

I am not saying that market processes are not taking place within it.

“The main reason is that such orders as

that of the market do not obtrude themselves on our senses but

have to be traced by our intellect. We cannot see, or otherwise

intuitively perceive, this order of meaningful actions, but are only

able mentally to reconstruct it by tracing the relations that exist

between the elements. We shall describe this feature by saying that

it is an abstract and not a concrete order”(Law Legislation and Liberty, vol-1 p38)

The market is an abstraction we should not equate with concrete things we can identify with.

Other than that I am not sure what you mean.

18

“Was he incorrect there?”

I do not think Mises was not wrong at all.

Mises is saying that cooperating with other people helps facilitate the attainment of their goals. And is not an end in itself. All fine and dandy.

Social cooperation however is not the same as the abstract concept of the market. Social cooperation is what creates this abstract order. The abstract order itself is not a means to any given end. Even though it is created out of specific examples of people pursuing their ends through cooperation.

19

I think that you are misunderstanding what Knott is saying. But I will leave it up to him to explain how.

20

Faustus:

Hayek is arguing that what makes a hammer a hammer, a lever a lever, a pendulum a pendulum, in the social sciences, is not the physical properties of those items, but the opinion or attitude of the actor toward those things.

All of these social things—what Hayek refers to as common objects of the social sciences— (hammers, levers, pendulums) have perceptual or physical referents. We can see or perceive the objects in question. But it is not these physical aspects that make them the social things they are. They are hammers, levers, and pendulums, as Hayek writes, if and because someone thinks they are.

Hayek then argues that when an actor holds a concept of what is before him, this concept entails implications that analysis can expound. I.e., one concept includes the idea of striking something, one concept includes the idea of lifting something, and one concept includes the idea of (let’s say) regulating or timing something.

This view of things is The Pure Logic of Choice, and is clearly outlined in “The Facts of the Social Sciences.”

Based on the concept of the object as the actor views things, we can analytically conclude further things, and these further things are necessary truths, since they are simply tautological transformations from the original concept of the object.

This notion could possibly be applied to the concept of ‘market’ in something like the following way:

What makes a collection of people or an assemblage of people a ‘market’ is, as with the hammer, not the physical characteristics of this collection or assemblage. Rather, what makes a collection of assemblage of people a market is the attitude or opinion of the person toward this assemblage. Paraphrasing Hayek, just as with money, words, and cosmetics, a market is a market if and because someone thinks it is.

What makes a farmer’s market, a supermarket, or E-bay,… markets, is not the physical characteristics of those things as I can perceive them or study them physically, but rather the attitude I take toward those things (the things being: an assemblage of people, a building with windows and signs, a computer screen in front of me, etc.). These things are markets to me because of the attitude I take toward them, not because of their physical characteristics.

This is Hayek’s argument were it to be applied to markets, as opposed to hammers, levers, pendulums, words, money, etc…

From this then, it would follow, according to Hayek’s argument, that when an actor takes an attitude toward a thing, the concept of this thing includes other things that analysis can uncover. To paraphase Hayek, when we say that a person is going to a market, or is selling something at a market, or is regulating a market, we imply that he knows that things can be exchanged there, that other actors will be there, that actors will be valuing things there, and perhaps many other things…

This is The Pure Logic of Choice were it to be applied to the concept of ‘market’ as opposed to the concepts ‘food,’ or ‘money,’ or ‘word,’ (the one’s Hayek specifically uses in his essay).

My argument is that Hayek didn’t realize that the Pure Logic of Choice would apply to the social object which is the ‘market’ just as it applies to other social objects such as money, words, hammers, etc.

The Pure Logic of Choice is an a priori discipline, and thus if the Pure Logic of Choice can be applied to the market as indicated, and Hayek didn’t realize this, then when he claimed that market theory is empirical and not a priori, this claim may have been based on his not realizing the full scope of the Pure Logic of Choice.

What you seem to be arguing is that the ‘market’ has no perceptual or physical referent. Your argument seems to be that the view of things I’ve outlined above is invalid, because, unlike hammers, words, money, or food, ‘markets’ have no physical or perceptual referents.

You write:

“a market is purely formal in nature”

“we must treat [a market] from the abstract nature of a ‘market’”

“A ‘market’ is purely formal or abstract in nature.”

“a market can never be an object of human intention”

“confusing a concrete for an abstract order”

In that case, I would like to ask you about this passage from Hayek:

“…my 1937 article on the economics of knowledge, which was an attempt to persuade Mises himself that when he asserted that the market theory was a priori, he was wrong; that what was a apriori was only the logic of individual action, but the moment that you passed from this to the interaction of many people, you entered into the empirical field.” (Hayek on Hayek, p.72, emphasis added)

How do you reconcile your concept of the market and of market order as purely abstract, with Hayek’s claim that we can only study the market empirically ?