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Collection: IHS Studies in Economic Theory
Subject Area: Economics

II - Israel M. Kirzner, The Economic Point of View [1960]

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The Economic Point of View: An Essay in the History of Economic Thought, ed. with an Introduction by Laurence S. Moss (Kansas City: Sheed Andrews McMeel, 1976).

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II

Praxeology and Purpose

We shall begin the more detailed dissection of the category of human action and the discussion of its suitability to serve as the focus of the economic point of view with a survey of the role of purpose in action. It has already been noticed in this chapter that it is purpose that endows the behavior of men with the unique properties that praxeology finds in human action. The views of Croce and Weber have been cited in this connection as expressions of the discovery, in the act, of a phenomenon unlike anything coming within the range of observation of the physical sciences. Stones dislodged from a hillside by the elements and hurtling down on the unsuspecting traveller in the valley are part of a different “event” than stones hurled with intent by men waiting in ambush. The latter are hurled with purpose; they are—in this case literally—aimed by human beings. Stone-throwing by human beings is something that the scientist can in part “explain” by reference to an element not present in natural phenomena, viz., the conscious aim of the thrower. Praxeology takes this very element as its point of departure; it finds human actions amenable to analysis in that they bear the imprint of a constraint imposed by chosen goals.

Now, the recognition of purposefulness in economic activity did not begin with the emergence of praxeological ideas. It is, of course, true that the older conceptions of economic science, which saw it as concerned with an objective entity such as wealth or goods, did not require reference to the purposefulness of human action. The scope of their discipline was described completely by the character of the objects whose “laws” it investigated. But even here it was difficult to avoid the implication of purposefulness in men's attitude towards these objects. This implication was given tacit recognition in the substantive analysis that the classical economists employed, and it tended to be brought into the open in the more sophisticated of the classical attempts to define “wealth.”

With the tendency, during the nineteenth century, to place man at the center of economics, the recognition of the role of purpose became almost a matter of course. Political economy was, in fact, the extended exposition of the consequences of one of man's many purposes, the acquisition of wealth. Discussions of the character that was thrust upon homo oeconomicus could hardly avoid the central fact of his purposefulness. Towards the close of the century economics came to be identified explicitly as a “teleological” discipline.17 Wealth came to be endowed with a “teleological nature.” Discussions of the assumption of rationality made by economists necessarily involved the notion of purposive behavior, of “ends” and “means,” and consequently pointed to the distinction that this characteristic conferred on any human, as against physical, phenomena. The emergence, during the early decades of the present century, of the concept of Verstehen brought the teleological character of human action still further into the forefront.

However, it is of some importance to appreciate the quite different role that praxeology assigns to human purposefulness in economic activity from that assigned by other points of view. Wesley Mitchell could point out that economists cannot understand what men do if they treat them as molecules, leaving their purposes out of account. He and other economists could draw attention to the new element of causality introduced by teleology in human affairs. They could recognize a chain of cause and effect in which the usual temporal relation is reversed, the present being “caused” by the goals set up for the future.18 But all this does not necessarily lead to a praxeological position. The economic point of view could be held to imply any arbitrary criterion that might be imagined, without in any way ruling out recognition of the causal element introduced by the teleological character of economic activity. Mitchell, for example, saw economic activity as essentially connected with phenomena of money. This was perfectly consistent with his stress on the usefulness of referring to purpose in providing the economists with “explanations.” The phenomena of the real world are the products of a number of diverse chains of causes and effects. The investigation of any group of phenomena in the real world must take into account as many such causal relations as possible. In the class of phenomena constituted by “economic affairs,” there exists a causal relation, the consequence of human purposefulness, that is absent among phenomena of the physical world. But no attempt need necessarily be made to state explicitly the distinctive qualities of “economic affairs” in terms of this purposefulness or of the causality to which it is admitted to give rise.

The part played by purposefulness in the praxeological conception of economic activity is a far more important one. Purpose is not something to be merely “taken into account”: it provides the sole foundation of the concept of human action. When Engliš defined economics as a teleological discipline, he was attempting to place his finger on the very nerve center of the subject.19 There is place for a distinct science of economics only because the teleological quality of action makes possible a unique kind of “explanation.” The theorems of economics are derived for praxeology exclusively on the basis of the purposefulness of human behavior. Other determinants of behavior—heredity, environment, and the like—are on a completely different level of “explanation”; as such, they belong to other disciplines; they have no place in a “pure” economic science.

The crucial position that purpose fills in the praxeological system is intimately connected, of course, with the conception of human action as rational. Rationality in human behavior consists, after all, in the consistent pursuit of one's own purposes; in selecting the means that appear best adapted to the achievement of one's goals; in refraining from courses of action that might frustrate their achievement or promise only the attainment of less valued, at the expense of more highly prized, objectives. The place of the rationality of action is sufficiently important for the praxeological point of view to deserve separate discussion in a subsequent section of this chapter. It is sufficient at this point, for the appreciation of the praxeological importance of human purposefulness, to emphasize as much as possible that a concept of rationality exists for praxeology only as the expression of human purposes.20

Emphasis of this kind is called for, perhaps, in order to disassociate the praxeological approach from what may be called the “positivist” conception of rationality in human action. It was seen in the previous chapter that Professor Robbins has been charged with employing the ends-means dichotomy in too positivistic a fashion. An “end” in Robbins' scheme, it has been alleged, is set up by an external observer as something positive, as a “correlate of a tendency to conduct”; it is used by Robbins in a way that abstracts from the conscious aiming and striving that characterizes human actions before they have been completed. “Rationality” in the disposition of means with regard to such denatured ends becomes simply the mechanical ordering and sharing of resources according to a given pattern.

Without our entering here into a discussion concerning the justice of this objection to Robbins' system, it is worthwhile to make explicit the quite different kind of rationality that is central to the praxeological view. Action is not described as rational because it involves the automatic manipulation of resources into a pattern faithfully reflecting a given hierarchy of ends. Rationality consists rather in the transference, to conduct involving means, of those features in behavior that accompany the direct pursuit of ends. Rationality involves the conscious effort to make one's conduct conform to a given path; it calls for the same aiming and striving by the economic agent towards necessary intermediate goals as he displays towards the “final” goals themselves. It is only from the “outside” that such rationality can be described merely in terms of a particular pattern of resource allocation. The full praxeological grasp of human action perceives its rationality as completely pervaded by the “aiming” quality bestowed on action by its teleological character. This aspect of purpose leads, in fact, directly into the more detailed exposition of the praxeological view of rationality, which is the subject of the succeeding section.

Praxeology and Rationality

Few features of the praxeological position seem to have been more seriously misunderstood than the very special significance that it attaches to the rationality of human action. In the praxeological view, action is rational by definition; and this has been attacked from two directions. On the one hand, it has been branded as palpably false and contrary to the facts of experience.21 On the other hand, it has been interpreted as a vicious misuse of language, in which the word “rational” has been emptied of all meaning, so that its use to describe action, while not false, conveys no information whatsoever. The insistent description of action as rational is thus a misleading attempt to appear to be saying something, without, in fact, doing anything of the sort.22 To say that a man acts rationally, it is complained, tells us nothing more about what it is that he does than that he does it. Both these types of criticism rest on a quite incomplete appreciation of how the rationality of action is used in the praxeological system.

The concept of rationality in human behavior has long been a topic for discussion in the literature on the methodology of economics. Attacks on the undue reliance which economic theory has been accused of placing upon human reason are as old as attacks on the very notion of an economic theory. Historically-minded critics of theory long ago discovered that man is possessed of “instincts,” that he is a creature of “habit,” that he is capable of being carried away by mass hysteria and other psychological aberrations. Economic theory, it was found, had blindly ignored the realities of life. Where it had not explicitly endowed economic man with an exclusive thirst for “wealth” or with an utterly selfish character, economics had apparently proceeded on the quite gratuitous assumption that men behave sensibly from the point of view of their own interests. It was easy to demonstrate how far from the truth economics must be; it was easy to point out the true character of men with their full array of impulses, instincts, and stupidities. On the other hand, it was not difficult for economists to defend their theorems as hypothetical constructions with a definite, if limited, applicability to the real world, or, alternatively, as providing norms for the appraisal of actual performance. And debates on these lines abound in the economic journals of the decades around the turn of the century and later.

In all these discussions the assumption of rationality made by traditional economic theory was treated in a special sense; and what is chiefly responsible for the misunderstandings mentioned above is the confusion of this traditional conception of rationality with the conception of it employed in praxeological discussions. The point at issue in the earlier discussions concerning the empirical validity of economic theorems that treat men as reasoning beings free of irrational impulses and instincts was the fruitfulness of a particular simplifying abstraction. The social phenomena of the real world are the consequences of human actions in which all types of influences have played a part. One of these influences stems from man's reasoning powers, which urge him to pursue a selected goal with a steadfastness and tenacity unperturbed by human weaknesses and passions. Economic theory, it was believed, investigates social phenomena on the assumption that this influence of cool reason is, in fact, sufficiently powerful to make man pursue unwaveringly a goal once chosen. And this assumption, introduced in order to make analysis possible, was criticized or defended in respect to its justifiability, in the light of the realities of human nature.

It was quite natural for the conception of rationality that was made central to praxeological ideas to be discussed in a similar fashion. When these ideas are made to hinge on a conception of rationality as a pervasive quality of all human action, they of course invited criticism as being in contradiction to the facts. And when it is pointed out that in the sense in which the praxeological view sees human actions as rational, no such contradiction exists, then the praxeological postulate of rationality is criticized as a misleading and empty use of words. It is explained, for example, that a man who is swayed from the pursuit of his own best interests by falling prey to a fleeting temptation is yet acting “rationally” in the praxeological sense. In the praxeological view, the man has simply substituted a new set of ends, represented by the fleeting temptation, for the previously chosen ends. The fact that in the eyes of an outside observer, or even in the eyes of the man himself at a cooler moment, it is the original set of ends that constitutes the man's “best interests,” is not sufficient to justify our labeling the man's pursuit of his newly selected goal as “irrational.” The selection of an end can never, as such, be judged in regard to its rationality; and there is no reason to question the rationality with which the man pursues his newly chosen end.

It is this kind of explanation that provokes the annoyance of the critics and incurs the charge of using the word “rational” in a viciously misleading manner. These strictures are, in fact, quite undeserved; and it is worthwhile to devote attention to clearing up the confusion on this point. We can perhaps best succeed in this by considering in some detail the contribution of Tagliacozzo, mentioned in the previous chapter, to the clarification of the notion of “economic error” or “uneconomic behavior.” Tagliacozzo deals with the “Rhine-wine” situation which had been involved in the Pareto-Croce correspondence cited earlier in this chapter at the turn of the century.

The “Rhine-wine” case concerned the man who does not wish to indulge in gluttony, who has in fact budgeted all his money for other, more highly valued purposes, but who, yielding to the temptation of the moment, buys and drinks Rhenish wine. Croce had written that by so acting the man has placed himself in contradiction with himself23 and that his sensual pleasure will be followed by a judgment of reprobation, an economic (to be carefully distinguished from a moral) remorse.24 The man is guilty of what Croce has elsewhere called “economic error”: the “failure to aim directly at one's own object: to wish this and that, i.e., not really to wish either this or that.”25 By contrasting this concept of economic error, as an error of will, with a technical error, which is an error of knowledge, Croce was enabled to criticize Pareto's distinction between logical (i.e., rational) actions, which are economic, and illogical actions, which are not. Action, Croce explains, is a fact of will, not of knowledge. The will presupposes reasoning, it is true, but action, which is the expression of will, cannot itself be qualified by adjectives such as “logical” or “illogical,” which pertain only to the application of reason.26

It was with this example of an economic error, the consumption of wine in defiance of a previously chosen program, that Tagliacozzo dealt at length. Tagliacozzo pointed out that the purchase of wine can be appraised from various vantage points. From the standpoint of full reality, no distinction between means and ends need be made at all. Wine has been purchased because such a purchase was desired, and that is all. There is no recognition of any “program” against which the man's action is to be compared and in terms of which it can incur disapproval or excite remorse. There is, consequently, no notion of an “end” separate from the means that might “bring about” the realization of the end.

From the point of view of the man's own budget plan, however, the case is very different. Here a yardstick has been set up by the man himself against which the “economic” correctness of his actions can be measured and found wanting. The artificial creation of a “plan” in the form of a prior selection of ends necessarily carries with it a “point of view” from which it is possible to appraise the wine purchase and to convict it of economic error.

Finally, the man's action can be contemplated with the realization that any one yardstick in the form of a program will necessarily be quite arbitrary; that the span of time over which such a “program” is to have validity may be as long or as short as we please. From this point of view it is clear that what is a “temptation” from the standpoint of a long-range program becomes itself an independent “program” in its own right in relation to a suitably brief span of time taken as a frame of reference. The consumption of wine has now become the desired end; the man's actions can still be appraised, but only for their consistency with this newly adopted “program.”

The distinguishing of these possible attitudes towards the wine purchase and the recognition of the relativity of the notion of an economic error enable Tagliacozzo to pursue Croce's theme to its ultimate praxeological conclusion. In a real action, taken as an independent event, there is no room for any discrepancy between the conception of a program and its realization; the two concepts coincide completely. But this understanding of the situation does not at all exhaust its significance. Actions can be “judged” with regard to the faithfulness with which they conform to “programs.” And there can exist a complete range of such “programs” against which any action may be appraised, depending on the particular frame of reference selected. The important fact is that the very conception of an economic “judgment” implies a particular tendency on the part of human beings such that deviation from it incurs (economic) “disapproval.” This tendency is one that makes for an identity of means and end, comparable to the intrinsic coincidence of means and end that is present in any real action considered as an independent event with no frame of reference other than itself. It is this “tendency” that demands “that given programs be respected; that wine not be bought, if the program does not provide for such purchase; that given means go as far as they can in the fulfilment of the ends.”27

Together with the consciousness of a chosen set of ends that comprise a program there is an inevitable consciousness of an inclination to reduce all the means and resources required for the attainment of the program to the same rank as the chosen purposes themselves. Failure to achieve such a complete coordination of ends and means, which spells susceptibility to the distractions of “temptations of the moment,” can be sustained only at the expense of fighting free of this conscious inclination—a struggle that makes up the sense of economic error. Now in so far as all human action is teleological and is the expression of purposes consciously chosen, it is clear that all action must necessarily be part of the operation of the tendency toward the identification of means and end. The man who has cast aside a budget plan of long standing in order to indulge in the fleeting pleasure of wine still acts under a constraint to adapt the means to the new program. Should a fit of anger impel him to forgo this program as well and to hurl the glass of wine at the bartender's head, there will nonetheless be operative some constraint—let us say the control required to ensure an accurate aim—which prevents his action from being altogether rudderless. It is here that praxeology has grasped the possibility of a new scientific range of explanation of social phenomena. Precisely because man's actions are not haphazard, but are expressions of a necessity for bringing means into harmony with ends, there is room for explanation of the content of particular actions in terms of the relevant array of ends.28

During the course of this discussion of the nature of economic error, the sense in which praxeology sees human action as “rational” will have become abundantly clear. It will also have become clear how the praxeological use of the concept of rationality is quite unaffected by both types of criticisms that we noticed to have been levelled against it. Its description of all human action as rational constitutes a proposition that is, in fact, incapable of being falsified by any experience, yet does, nevertheless, convey highly valuable information. Action is necessarily rational because, as we have seen, the notion of purpose carries with it invariably the implication of requiring the selection of the most reasonable means for its successful fulfilment.29 Such a proposition cannot be proved empirically false because, as we have seen, programs can be changed, so that evidence that a man no longer “follows his best interests” proves only that he has chosen a new “program” the necessary requirements of which no longer permit him to follow—what used to be identified as—his best interests. Despite the impossibility of its empirical contradiction, this proposition yet conveys highly useful information because the insight it provides makes possible the derivation, in regard to whatever program is relevant in given circumstances, of highly developed chains of theorems. The kind of knowledge that such theorems can convey, their dependence on the praxeological postulate of rationality, and the implications of the italicized qualification in the previous sentence will become more easily comprehensible in the subsequent sections of this chapter.

The Assumption of Constant Wants—the Praxeological Context

Closely related to the preceding definition of the sense in which praxeology depends on the rationality of human action is the further clarification of the relevance of such rationality for a praxeological science, and especially of the character of the assumption of a constancy of wants. A praxeological theorem becomes possible because of the quality of purpose in action. This quality enables the praxeological theorist, by resorting to his own reason, to predict the path that a given person will follow under the requirement of using his reason in order to fulfil his purposes.

The appreciation of the character of a praxeological theorem so derived throws immediate light on the notion of “given ends” and the assumption of a constancy of wants, both of which are inevitably involved in such a theorem. The previous chapter dealt in some detail with Robbins' conception of ends as data for economics. It will be noticed that the praxeological view places equal emphasis, and for substantially similar reasons, on the notion of given wants and purposes. The point at issue hinges on the very possibility of knowledge acquired through praxeological excogitation.

A great city is served by alternative means of transportation; one of these means of transportation has been crippled by an accident. It will be obvious to the observer of the effects of the accident that the alternative means of transportation will tend to be employed in larger than normal volume. In making this prediction the observer has made a simple application of his reasoning powers to a problem of human action; he has applied a theorem of praxeology. The knowledge that he has so acquired is a piece of information different from the data from which he began, but which was, nevertheless, implied in the assumptions concerning human purposes that the observer felt entitled to make. Because he was able to assume that many people desired transportation with sufficient urgency, the observer was able, from his own knowledge of the alternatives open to them, to predict the course of action that they would take. It is clear that this newly acquired knowledge was gained only because of the existence of given purposes, and it is only in relation to these given purposes that this praxeological knowledge has significance.

Analysis of human action can proceed only by the treatment of given purposes as data; the effects of a change in surrounding circumstances can be deduced only on the assumption that these purposes are adhered to with constancy, that no new “program” has been substituted for the old. These restrictions on the derivation of praxeological knowledge follow from what has been said in the previous section concerning the rationality implicit in the concept of human action. It was seen that the rationality of action can be appraised relatively to various mutually inconsistent programs that a person may, under different sets of conditions, have chosen. Because this is the case, it is essential, for the derivation of a praxeological theorem, that it be formulated in reference to one such program, whose dominance and relevance must, along with other information, be supplied by the data. Once the data have been supplied, theorems may be derived that will possess necessary truth, but their validity remains strictly dependent on the data; their truth is limited to the “programs” to which they are relevant.

It is a curious fact that critics of economic theory have time and again seized on this feature as a central and damning weakness. The application of economic theorems to the explanation of concrete historical situations requires careful scrutiny of the data on which such theorems are to be grounded. The data will vary, of course, from one concrete case to another. The correct use of economic propositions in particular real situations presupposes, as a matter of course, adequate factual information regarding changes in the data. The writers who have from time to time disparaged the work of economic theorists altogether and urged economists to devote themselves more or less exclusively to the description and classification of those changing facts themselves have pointed to the “relativity” of theories. They considered the necessary limitations on theoretical constructions, which are imposed by virtue of the fact that they are valid only in relation to given programs, as grounds for believing that economic knowledge can be derived more efficiently by simple reference to the changing programs themselves. An economic theory might be an elegant source of intellectual satisfaction, but the severe circumscription of its applicability made it of only academic interest.

It seems worthwhile to point out that, as our discussion of the foundations of praxeological knowledge makes clear, the acknowledged relativity of a praxeological theorem to a given program as its frame of reference is, in fact, not a weakness at all, but is, on the contrary, a reflection of remarkable scientific achievement. Contemplation of the raw data alone presents a range of social phenomena that seem to defy orderly explanation altogether. It seems impossible to develop chains of cause and effect that can bring any semblance of determinacy into the data. Certainly mere analysis of the masses of empirical figures cannot yield any stable “laws” and relationships. The very fact of changing programs, changing tastes and prejudices, makes for an area in which no logical necessity is visible at all and in which everything seems to be in a condition of haphazard flux.

It is into this bewildering mass of empirical data that the economic point of view throws a ray of light. It enables us to grasp an element that does introduce a measure of explanation into social phenomena. This element is laid bare by subjecting the empirical data to a systematic abstraction, made possible by recognition of the character of human action. By taking a cross section of social phenomena at a particular instant in time, by considering the programs that members of society have chosen at that instant and by mentally arresting program changes, one can apply praxeological theorems to these various programs and deduce the consequences. The conclusions so derived are valid in relation to the assumed programs, and provide an explanation of the concrete phenomena of the real world in so far as there is a tendency for men to adhere to programs once they have been initiated. Moreover, once the possibility of this type of explanation is grasped, it is clear that all historical phenomena admit, at least in principle, of being treated in such terms. It becomes merely a matter of feeding the suitable assumptions and data into the theoretical system and extracting the appropriately complicated chains of reasoning.

The crucial point is that the perception of any kind of explanatory framework has been made possible only by prescinding from any conceivable change in a given set of programs. The introduction of any kind of order into the jungle of empirical data has been accomplished by abstracting from full reality and accepting a hypothetical state of affairs as a frame of reference. It is the outstanding achievement of economic theorists to have been able to recognize determinate causal chains within the tangles of statistics; they were able to succeed in this only by treating social phenomena as the systematic working out of the praxeological consequences of given programs that were adhered to. A particular program may not necessarily be adhered to, but the emergence of human action at all presupposes the existence of some program that was adhered to, and it is in reference to this that praxeological reasoning provides the explanatory key.

An economic proposition referring to a given set of circumstances, a particular configuration of demand, a specific technological context will provide information concerning this definite situation. Changes in the data, a revolution in tastes, the acquisition of new habits, the discovery of more efficient techniques will all make up a situation to which a new praxeological solution will be relevant. To deny the applicability of economic reasoning because of the change in conditions is to deny that the old set of conditions did set up specific “forces” constraining action; it is to deny that these “forces” provide an interpretation of action that goes beyond a mere cataloguing of observed events. “But,” as Professor Knight has commented, “this fact certainly cannot be denied.”30

The position that the praxeological element occupies within the whole class of social phenomena has been set forth by various writers. Professors Mises and Knight have devoted considerable attention in their writings to the elucidation of this point.31 Within narrow limits man can be observed and his behavior explained purely mechanically. At this level of interpretation human behavior is considered only in the positive terms of stimulus and response; it is completely “caused” in the sense that the problem-solving elements in human conduct are ignored. On higher levels of interpretation, however, the conduct of men involves recognition of their putting forth effort, of their attempt to solve problems—in short, of their human actions.

Here again various levels of discussion are possible. Unquestionably the most “interesting” and, for the business of living, the most important is the consideration of the ways in which men have acquired their particular interests; the development of particular programs that men believe worthy of undertaking; the forces that determine people's value judgments and the emergence of their sense of absolute moral appraisement. The level of interpretation on which praxeology has a contribution to make is, however, a more modest one. It is willing to accept the interests and programs of men as data and seeks to understand, in terms of these interests and programs, the chains of consequences that can be deduced. The principles of human action make it possible to ascribe and refer back historical events to such interests and programs as “final causes” that can be accepted without further explanation.

Praxeology, Apriorism, and Operationalism

The considerations set forth in the previous section are sufficient to make clear what writers have had in mind when they have characterized economics as an a priori science. This description of economic knowledge has been repeatedly misunderstood; it has been repeatedly taken out of context and held up for ridicule.32 But the matter is essentially logical and clear.

Professor Mises in particular has stressed the a priori nature of praxeological knowledge. A theorem of a praxeological science provides information that has been derived by sheer reasoning; it is the product of pure logic without the assistance of any empirical observation. As such, a praxeological theorem is congeneric with a theorem of geometry; being the rigorously derived consequences of given assumptions, it partakes of the “apodictic certainty” that is necessarily possessed by such an exercise in logic.

Disagreement with this approach has been vigorously expressed by a number of writers. Dissatisfaction has arisen from several points of view. On the one hand, it is pointed out that an a priori theorem, being derived by sheer logic from given axioms, is necessarily circular, in that it merely tells us in a different way what we already know by our knowledge of the axioms themselves. All the information provided by economic reasoning is thus merely extended circumlocution. So long as economics was not acknowledged as a praxeological science, it is argued, this objection could not be raised. So long as it had been necessary to introduce specific postulates about the way in which people actually behave, an economic theorem did tell something new. If, for example, it was postulated that men behave “rationally” and rationality was defined so as to possess definite empirical content, such as a pattern of behavior that maximized money profits, and the like, then the consequences of this assumption do provide new information. Deduction from the specific assumption made has yielded a theory, against which the assumption could, in fact, be tested for its faithfulness to the facts. But with the emergence of the view of economic knowledge that saw it as completely independent of particular empirical assumptions, the situation became completely altered. A theorem describing the consequences of human behavior that does not take into account the concrete content of that behavior must remain, it has been repeatedly asserted, simply a different way of saying that people behave as they behave.33

Closely connected with this criticism of economics a priori are the objections raised against its supposed misuse of a method of doubtful respectability, viz., introspection. Implicit in much of the unfavorable discussion of apriorism in economics is the current belief that only “operationally meaningful” propositions ought to find a place in science.34 A theorem which makes no direct reference to observable facts, and which therefore cannot be “tested” against observable facts, is one the interpersonal validity of which must remain in doubt and to which “scientific” status is to be denied.

Now, these are issues that concern basic epistemological problems far wider than the range of this book. Closely though they relate to the praxeological view of the nature of the economic aspect of affairs, they themselves are concerned with inquiries into the nature of science and knowledge that would carry us far away from our own subject. Professor Robbins has gone so far as to relegate completely to philosophy all such discussions concerning the a priori character of economics.35 Mises, Knight, and Hayek have most vigorously justified the kind of introspection that is necessary for the conception of economic knowledge as “scientific” without being empirically “testable.”36 We are not so much concerned here with the scientific validity that may be attributed to a priori economics as with the clarification of the precise sense in which the praxeological conception of the economic point of view does, in fact, imply a strictly a priori position.

The concept of human action is sufficient, in the praxeological view, for the deduction of complex chains of reasoning concerning the choices men will make, the alternatives from which they will be forced to choose, and the like. Human action relates to real entities, goods, or services; it develops against the background of objectively measurable price relationships. Economic science seeks to provide an explanation of these real phenomena; it seeks to explain the consequences of given changes in data, to relate market phenomena to the underlying human motives. Praxeology envisages the successful attainment of these goals through the scrutiny of human affairs from a specific point of view that recognizes the teleological and rational nature of human action. This point of view makes possible the construction of chains of reasoning that are purely formal, in the sense that they refer to goods, services or factors of production only abstractly; they depend for their validity not on the specific objects with which human action may be concretely concerned, but only on postulated attitudes of men towards them. The propositions that can be deduced in this manner may thus, of course, include the analysis of situations that may be quite unreal. And in order to be of service in the understanding of reality, praxeology must direct its attention exclusively to the analysis of situations that correspond to the actualities of the external world. It would be possible, for example, to examine the consequences of a world in which labor was preferred over leisure. Economics could certainly deduce theorems concerning prices, incomes, and production in such a world. But this would be intellectual gymnastics of a fruitless kind.37

To maintain contact with situations that do in fact require explanation, economics must thus resort to experience for guidance. It must take the facts as they are and apply to them the a priori logic of human action. “It adopts for the organized presentation of its results a form in which aprioristic theory and the interpretation of historical phenomena are intertwined.”38 It is clear that the exposition of economics as an a priori science has never implied that it can dispense with references to factual observation in the final statement of its results. Particular economic propositions will concern human attitudes and conventions that do conform to those of the real world. The sense in which it is maintained that economics is an a priori branch of knowledge is a much narrower one. It concerns the contribution that the recognition of the concept of human action makes to the explanation of social phenomena.

The observation of facts provides useful knowledge. This is the procedure of history. But observation does not exhaust the knowledge and understanding that we can attain concerning these affairs. The economic point of view injects an immediate sense of order into these affairs, an order that brings with it a large measure of explanation. This explanation is achieved by subjecting the observed data to a specific scientific procedure, praxeological reasoning. This procedure is in itself quite independent of the facts to which it is applied. It could be applied to conditions that are nonexistent. It is itself the contribution of human logic and reasoning alone. In this sense the theorems of economics, closely though they refer to concrete reality, are to be described as a priori. They are derived purely from the knowledge that the human mind possesses of the category of action.39

The separation that is thus emphasized, between the facts and their logical analysis through economic reasoning, is a fruitful one. It stresses the quite distinct operations that are being performed in the observation of economic history and in the development of economic theorems. It focuses attention on the new source of knowledge that is provided by our understanding the nature of action. It illuminates the striking fact that pure reason can convey knowledge concerning brute facts of the real world. Because men act as reasoning beings, it is possible to explain their concrete patterns of behavior by applying to their attitude the theorems that our own reason has supplied.

All this does not prevent the praxeologist from maintaining a becoming modesty with regard to his own contribution. He does not in any way believe that his theorems can exhaust all that can be known about social phenomena; he does insist on the unique assistance he can provide. He does not deplore close attention to market data, to masses of statistics, and the like; but he does deprecate the view that this kind of scrutiny can be a substitute for economic reasoning or that it needs to be resorted to as a “test” for the correctness of such reasoning. His recognition of the category of human action does impress upon him most forcefully the utter helplessness with which the masses of facts must be faced without the illumination provided by a procedure of analysis that itself owes nothing to these facts—the application of economic reasoning.

The Economic Point of View and Praxeology

Our discussion thus far in this chapter has made no attempt to distinguish a specifically economic point of view from the general praxeological outlook. We set out, in this book, to examine the various points of view held to characterize economic science and through which an “economic” aspect of social phenomena has been distinguished. Our search has led us in this chapter to consider the filiation of ideas that have found the specifically economic point of view to be merely part of a broader perspective, the praxeological view. The economic aspect of affairs is simply the praxeological; a theorem of economics is simply a praxeological proposition.

To be sure, the praxeological perspective embraces a range of human action far wider than that usually treated in economic theory. All human actions, motivated though they may be by the entire range of the purposes that have inspired and fired men to act, come within the sway of the ideal praxeological discipline. The constraint that men feel to fulfil their purposes in spite of obstacles pervades all aspects of life. It is the position of praxeology that the common category that embraces the entire range of human efforts is the key to economic science. We have seen at various points in this book that economists have again and again searched for something in economics that should differentiate it from the rest of human action. These thinkers were deterred from expounding the praxeological character of economics for the very reason that this character is common to other aspects of social life.

The praxeological view sees economic science as the branch of praxeology that has been most highly developed.40 Perhaps other branches will one day attain a similar stage of development. The important point is that distinctions between various “branches” of praxeology must be arbitrary. Economics is a “given pie”; it is not a pie that every economist can make at will or for which he can prescribe his own recipe. Economic theory has a “nature of its own” that must be respected; certainly it must be recognized if its distinctive contribution is to be made at all. But the pie that is the economic aspect of affairs is bigger than that traditionally treated by economists; it embraces all human action. The slice that makes up economic theory may—so long as it is cut from the correct pie—be cut in any arbitrary way. “It is impossible to draw a clear-cut boundary around the sphere or domain of human action to be included in economic science.”41 “The scope of praxeology, the general theory of human action, can be precisely defined and circumscribed. The specifically economic problems ... can only by and large be disengaged from the comprehensive body of praxeological theory.”42

Economic theory has traditionally dealt with the phenomena of the market, prices, production, and monetary calculation. In these spheres of human activity, theorists have developed constructions that help to explain the regularities these phenomena evince and to bring into clear focus the tendencies for change in these phenomena consequent upon given autonomous changes in the data. Writers on economics have striven to present precise definitions of the scope of this discipline. From the point of view of praxeology, the earlier attempts suffered from their tendency to seek for the defining criteria in the nature of the specific affairs with which market phenomena are concerned. The consequence of these searches was the series of formulations examined in the earlier chapters of this book. The subject matter of economics came to be connected with the material things that are the objects of traffic in the market; it came to be linked peculiarly with the use of money in market transactions or with the specific social relationships that characterize the market system. Where writers came closest to the recognition that these criteria were only accidental characteristics of the affairs upon which economic analysis could be brought to bear, where they were able to glimpse the congenerousness of the specifically economic type of analysis with the underlying actions of men, they were unable to follow this clue to the conclusion to which it pointed. Precisely because those features in action that made it susceptible of economic analysis seemed common to all human activities, these writers were driven back to look for some other defining characteristic. And this meant again the search for some arbitrary quality to justify selecting the particular slice of pie that made up economic theory; but it meant in addition the relegation yet further into the background of the true recipe of that larger pie from which their conception of economics was being arbitrarily hacked.

From this point of view the formulation of the nature of the economic in terms of the allocation of scarce means among competing ends occupies a rather special position. This definition, discussed at length in the previous chapter, differs from the rest in its approach to the problem. It defines an aspect of human activities in general; it does not look for the key to economic phenomena in the specific kinds of activity with which they are mostly concerned. In finding the economic aspect of activities in general to consist in concern with the ends-means relationship, this conception too includes within its scope kinds of actions with which economics has had traditionally little to do. From the praxeological standpoint, in fact, the idea of economizing scarce means in allocating them among alternative ends, when used as a criterion for defining the domain of the economic, is nothing but a convenient, though artificial, framework in which human actions can be analyzed. The allocation among competing goals is a technical concomitant of a good deal of purposeful behavior. Human action does frequently call for carefully apportioning scarce means among competing projects. In a formal sense it is even possible to consider all human action as consisting in such allocation; but this involves the kind of artificiality in the conception of ends and means with which Professor Robbins' definition was charged. The principal merit of the latter is thus its implicit dependence on the concept of human action; its apparent inadequacies stem from its attempt to consider action as conforming to a particular technical pattern. Much of the criticism Robbins' definition received will be seen to dissolve when his conception of economics is related more clearly to the idea of human action. The allocation of scarce means among alternative ends simply signifies the consistent pursuit of ends, the consistent pursuit of the more highly valued ends taking precedence over the fulfilment of the less highly esteemed ends. It means, in fact, the exercise of the human faculty for purposeful action.

It is not to be denied that the ends-means formulation seems to fit with remarkable neatness the phenomena treated by economic theory. But this neatness has been achieved at the cost of a failure to press on to the very crux of the economic point of view. We are not thereby apprised, as the expression of this economic point of view is able to apprise us, how an analysis of human affairs by economic science is made possible by the very perspective from which the economic theorist views them. The ends-means dichotomy does not show how the recognition of the principle that governs the allocation of means conduces at the same time to a recognition of the possibility of scientific analysis and explanation of economic phenomena. Only when the economic point of view is conceived as focusing attention on the nature of human action is it able to provide the key to economic science. And in this sense it can indeed be contended that the definition of economics in terms of the economizing of scarce means (like others before it) “fails to convey an adequate concept of its nature,”43 until this definition is superseded by the fully developed conception of economics to which it logically leads, viz., the praxeological point of view.

“Economists would agree,” Cannan wrote, “that ‘Did Bacon write Shakespeare?’ was not an economic controversy. ... On the other hand, they would agree that the controversy would have an economic side if copyright were perpetual and the descendants of Bacon and Shakespeare were disputing the ownership of the plays.”44 This is so, Professor Robbins explains,45 because the supposed copyright laws would make the use of the plays scarce and would in turn yield their owners scarce means of gratification that would otherwise be differently distributed. Of course, Professor Robbins is correct, but the same explanation can be given in terms that make it immediately clear how the economic side of such a controversy is able to yield material for the economic theorist.

It can be explained, that is, that the controversy has an economic aspect because the assumed copyright laws affect the conditions of human action in either or both of two ways. In the first place, as they render the use of the plays scarce, the laws will have altered the pattern of action on the part of prospective producers. An additional obstacle has been placed in the way of persons desiring to produce the plays; and it will be obvious that a prospective producer will be constrained to forgo some less highly prized gratification in order to fulfil his dramatic purposes. On the other hand, it will be clear that this state of affairs opens up a new avenue by which the legal owner of the plays may possibly be enabled to fulfil his own purposes more completely, through taking advantage of the producers' attitudes. Either of these two influences of the controversy on human actions is sufficient to invest it with interest for the economic point of view. This way of expressing the nature of this point of view, however, reveals at the same time the very nature of the analysis that it makes possible.

[[17]]See, e.g., G. H. Schmidt, “Rapports de l'économie politique avec la morale et le droit,” Revued'économie politique, 1900, p. 334; G. Trade, Psychologie économique (Paris, 1902), p. 151.

[[18]]On the use of teleology for the recognition of causation as running from the future back to the present, see W. C. Mitchell, “Commons on Institutional Economics,” American Economic Review, December, 1935, reprinted in The Backward Art of Spending Money, p. 334; Z. C. Dickinson, “The Relations of Recent Psychological Developments to Economic Theory,” Quarterly Journal of Economics, May, 1919, p. 388; see also the reference to Weber's writing above in note 10. Cf., however, M. J. Plotnick, Werner Sombart and His Type of Economics (New York, 1937), pp. 88–89.

[[19]]K. Engliš, Grundlagen des wirtschaftlichen Denkens (Brunn, 1925).

[[20]]See J. N. Tewari, “What Is Economics?” Indian Journal of Economics, April, 1947, pp. 421 ff., for the identification of rationality with purposefulness.

[[21]]For an example of this kind of criticism, see J. Robinson, Economics Is a Serious Subject (Cambridge, 1932), p. 10.

[[22]]For this type of objection, see L. M. Fraser, Economic Thought and Language, p. 37 n.; T. W. Hutchison, Significance and Basic Postulates of Economic Theory, pp. 115 ff.

[[23]]Croce's characterization of the action of a man yielding to temptation as placing himself in contradiction to himself finds a recent echo in a passage in Little's Critique of Welfare Economics, p. 23. Little makes it clear that what is meant by a man's maximization of his utility is simply his behaving in the way in which he said he would behave. “Roughly speaking, maximizing utility means telling the truth.”

[[24]]International Economic Papers, No. 3, p. 201. For an appraisal of Croce's position, see A. L. Macfie, An Essay on Economy and Value, Appendix B, pp. 143 ff.

[[25]]International Economic Papers, No. 3, p. 177.

[[26]]Professor Mises has not recognized the close similarity to his own position which is evidenced in Croce's writing (see L. Mises, Theory and History, p. 308). What appears to be the principal point of difference between their positions has little relevance to the conception of the character of economic science. Both writers emphasize the rationality of all human action; both recognize that a chosen program may fail to be adhered to either because of a technical error (an error of knowledge) or because of the choice of a new program of ends with respect to which action will be “rational.” Where the two writers disagree is that the discarding of a chosen program in favor of one chosen in response to a “temptation of the moment” is, for Croce, itself a special kind of error—an economic error, an error of will. For Mises, there is room for only one kind of error, an error of knowledge (see Theory and History, p. 268). The conscious abandonment of a chosen program under the influence of a fleeting temptation is considered “positively” as merely the adoption of a new set of ends instead of the old, and that is all.

[[27]]G. Tagliacozzo, “Croce and the Nature of Economic Science,” Quarterly Journal of Economics, May, 1945, pp. 319–320.

[[28]]Especially relevant to the considerations of this section are Mises' strictures on Weber's “ideal type” of rational economic behavior. See above, note 10.

[[29]]The proposition that the notion of purpose implies a constraint that one select the most suitable means for the fulfilment of the purpose is not a proposition about that purpose. The proposition as such cannot, for example, be “explained” (as Macfie does) by the postulation of a moral urge to fulfil one's purposes. Rather, the proposition, on the praxeological view, sets forth the nature of purpose itself. The statement that man's actions are purposeful is thus only another way of saying that man feels constrained to match means to ends.

[[30]]F. H. Knight, “Professor Parsons on Economic Motivation,” Canadian Journal of Economics and Political Science, 1940, p. 463. In this connection it is of interest to notice that the position of economic science in the face of changing hierarchies of chosen programs has been set forth with exceptional clarity by F. S. C. Northrop in his article “The Impossibility of a Theoretical Science of Economic Dynamics,” Quarterly Journal of Economics, November, 1941, reprinted as ch. XIII in his The Logic of the Sciences and the Humanities (New York: Macmillan & Co., 1947). Northrop demonstrates the impossibility of theoretical economic dynamics (on the assumptions and with the method of contemporary economic theory) by pointing out the lack, in economic affairs, of the conditions for such a theory. The data of economics (human wants) are, for its theorems, purely formal entities, whose specific properties are necessarily not to be considered. Moreover, there is no way of deducing the structure of future wants from present wants because wants obey no “conservation law.” Nor, Northrop adds, is there any a priori reason why the subject matter of economics should be conceived in terms of concepts obeying such a law. The quest for an economic dynamics may well “have its basis in a dogmatic assumption, with respect to which our empirical knowledge already gives the lie.” Northrop takes two groups of critics to task: those who mistakenly demand of economics that it take account of changes in the basic data—the relevant chosen ends; and those who, despairing of such an achievement, conclude that economics is of no use whatsoever. Both extremes err in their assessment of the nature of the scientific contribution that it is in the power of economic theory to make.

[[31]]See, e.g., L. Mises, Theory and History, ch. XII; F. H. Knight, “Professor Parsons on Economic Motivation,” Canadian Journal of Economics and Political Science, 1940, pp. 463 ff.; F. H. Knight, “‘What Is Truth’ in Economics?” On the History and Method of Economics (Chicago, 1956), pp. 171–173.

[[32]]For passages in which the a priori view has been compared to scholasticism, see R. F. Harrod, The Trade Cycle, pp. 38–39; E. C. Harwood, Reconstruction of Economics, p. 39.

[[33]]See, e.g., T. W. Hutchison, Significance and Basic Postulates of Economic Theory, p. 116; P. A. Samuelson, Foundations of Economic Analysis (Cambridge, 1948), p. 91.

[[34]]On this see the references in the previous note; see also A. G. Papandreou, Economics as a Science (1958). For a criticism of this position, see F. Machlup, “The Inferiority Complex of the Social Sciences” in On Freedom and Free Enterprise, Essays in Honor of Ludwig von Mises, ed. M. Sennholz (1956).

[[35]]L. Robbins, “Live and Dead Issues in the Methodology of Economics,” Economica, August, 1938, p. 348.

[[36]]See, e.g., L. Mises, Theory and History, pp. 283 ff.; F. H. Knight, “‘What Is Truth’ in Economics?” On the History and Method of Economics, p. 160; F. A. Hayek, Counter-Revolution of Science, Part I, ch. III; cf. also P. A. Sorokin, Socio-cultural Causality, Space, Time (Durham, 1943), ch. I. See also F. S. C. Northrop, Logic of the Sciences and the Humanities, p. 247, for the recognition of the “empirical verification” of economic theory in the confirmation of its logical derivation from the immediately confirmed postulates. On this see also M. Rothbard, “Mises' ‘Human Action’: Comment,” American Economic Review, March, 1951, p. 181; M. Rothbard, “Towards a Reconstruction of Utility and Welfare Economics” in On Freedom and Free Enterprise, Essays in Honor of Ludwig von Mises, ed. M. Sennholz (1956), pp. 225–228.

[[37]]L. Mises, Human Action (Yale, 1949), p. 65; cf. M. Pantaleoni, Pure Economics (English ed.; London, 1898), p. 8.

[[38]]L. Mises, Human Action, p. 66. See also F. A. Hayek, “Economics and Knowledge,” Economica, 1937; reprinted in Individualism and Economic Order (1948), pp. 47–48.

[[39]]See especially the remarks on Mises' “apriorism” by H. Bernadelli in his “What Has Philosophy to Contribute to the Social Sciences, and to Economics in Particular?” Economica, November, 1936, p. 449. For an analysis of propositions concerning land rent which displays the a priori nature of the pure economic theory involved as well as its relation to the empirical finding that makes the theory applicable to specific situations, see Hayek, Counter-Revolution of Science, p. 32.

[[40]]For a systematic table of the possible praxeological sciences and the place that economics occupies within the system, see M. Rothbard, “Praxeology: Reply to Mr. Schuller,” American Economic Review, December, 1951, pp. 945–946.

[[41]]F. H. Knight, “The Common Sense of Political Economy,” Journal of Political Economy, October, 1934, reprinted in On the History and Method of Economics (University of Chicago Press, copyright 1956 by the University of Chicago), p. 110.

[[42]]L. Mises, Human Action, p. 235.

[[43]]C. L. Robbins, Nature and Significance, p. 22.

[[44]]E. Cannan, Wealth (1st ed.), ch. I.

[[45]]L. Robbins, Nature and Significance, p. 22.