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Collection: IHS Studies in Economic Theory
Subject Area: Economics

The Emergence of the Praxeological View of Economics - 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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The Emergence of the Praxeological View of Economics

Postponing for subsequent discussion the further details of the praxeological view and the consideration of the controversial points involved in it, we shall proceed to outline the development, during the past three quarters of a century, of the stream of thought to be regarded as the praxeological view of economic science. Since its emergence, the praxeological point of view has been most fruitful, not in the extensive exploration of new sciences of human action, but in the consequences of its recognizing the theorems of economics as being the propositions of a science of human action. The possibility of theoretical statements concerning economic activity was seen as not at all due to any supposed uniqueness in the phenomena of wealth or material welfare or money or any of the other numerous criteria that had been used in defining economics. It was perceived that economic theory derives from precisely that element in human behavior which we have described as human action. The particular forms of action that have been traditionally investigated by economists are, indeed, distinguished by close association with various institutions such as money or with specific patterns of action such as interpersonal exchange. But if there is any meaningful underlying unity in the theorems of economics, it is to be found only in the concept of human action. Seen from this vantage point, economic theory acquires immediately a position unique within the range of human knowledge. It is the discipline that has alone successfully sought to harness the element of human action to the scientific explanation of social phenomena.

The earliest formulations of the praxeological view of economics in anything approaching a complete statement appeared about the turn of the century. Before this there had been several penetrating attempts to elucidate the nature of economic science. Several of these, especially those seeking to distinguish a specifically “economic principle” in action, have been cited in earlier chapters. But the uniqueness of human action as seen by praxeology, that is, as making possible a characteristically distinct contribution to the understanding of social phenomena, had not been expounded. Aside from isolated statements by several writers, who seem to have caught a glimpse of such a possibility,2 it was not until the nineties that economics was clearly identified with the logic of conscious choice.

Perhaps the first discussion of the role of economics as a science of human action in this praxeological sense is that of an American, Sidney Sherwood. Writing in 1897 on the “philosophical basis of economics,”3 Sherwood declared that a general science dealing with “consciousness in action,” a “science of practical life,” was the intellectual necessity of the time. Hitherto special disciplines such as history, law, politics, and sociology had groped forward in this direction. But a “master science” was required to give a common starting point and method to these special inquiries. Such a science “must explain all the conscious activities of men by reducing them to terms of the motives and choices of the individual consciousness.” To Sherwood it seemed that economics is the science outstandingly fitted to play this role. “Economics deals with wants consciously felt, resources consciously perceived, and consciously directed to the end of gaining conscious satisfaction ... ” Any restriction of economic reasoning to the sphere of material goods is completely artificial. It seemed “inevitable” to Sherwood that economics must ultimately include all human values. “All pleasures, all values, all choices, all teleological activities, are, in fact, chosen and followed upon principles which economics alone has explained in a scientific manner.”

All human self-directed conduct, Sherwood pointed out, proceeds from choices that are simply the valuations of certain courses of action. The motive power in the practical activities of man is to be found in his consciously felt desires. Sherwood sharply criticized the temptation, to which several sociologists of the period had succumbed, of applying physical and biological concepts to psychical phenomena. The fitness that survives, according to the biological notion of evolution, is an unforeseen fitness, an adjustment wrought out in consequence of the struggle. But psychical activities are essentially purposeful; the fitness that survives in social adjustments is prearranged. Sociologists are guilty of unscientific procedure when they group the phenomena of economic adjustments together with those of unexplained and fortuitous biological change.4

Sherwood's perception of the nature of human action and of the praxeological character of economics is unmistakably clear. The adjective “conscious,” which he constantly uses to describe the types of conduct dealt with by economics, and his explicit relation of such conduct to human motives identify the “master science” for which Sherwood is searching as an all-embracing praxeology. That Sherwood's definition of economics represents, in this respect, an advance over that of his contemporaries becomes apparent from the originality of his attitude towards the use of the “economic principle” as the defining criterion. It was seen in an earlier chapter that several writers, such as Dietzel and Neumann in Germany and Hawley in the United States, had been deterred from using the economic principle as a criterion for defining economics on the very grounds that make the principal significant, namely, that it characterizes all kinds of human activity. These writers recognized the importance to economics of the rational element in economic activity; indeed, this element played so obvious and dominant a role in economic analysis that, as the “economic principle,” it suggested itself to them as the natural mark identifying the phenomena with which the discipline dealt. This suggestion they found themselves forced to reject on the ground that all human activity displays the very same hallmark of rationality, that the economic principle governs all the conscious activities of man. And this left them no choice but to seek for some other quality in economic phenomena that they, among all other social phenomena, might uniquely possess in common.

Sherwood, starting from a position substantially similar to that of these writers, was able to reach a quite different conclusion. Once it had been suggested that economic phenomena are susceptible of analysis by virtue of their rational quality, Sherwood found it impossible to discard this idea. Instead of being dismayed at finding a similar purposefulness, a similar rationality and adherence to the economic principle, throughout the range of human activities, Sherwood was awakened thereby to a new appreciation of the role of economics. Instead of impelling him to look for other characteristics by which to delineate the scope of economic science, the realization of the all-pervasive influence of the economic principle convinced Sherwood of the futility and artificiality of erecting rigid boundaries purporting to separate economic activity from human action generally. The conscious direction of resources to the end of gaining conscious satisfaction was so fundamental to the very conception of economics and was at the same time so obviously a factor decisive in all action, that Sherwood could see economics transformed into a spearhead of a new “master science” that might investigate the consequences in activity generally of the consciously motivated element in action. Hitherto economics had been confined, to be sure, to specific kinds of phenomena, but this restriction was an artificial one and in no way corresponded to a unique field of knowledge.

This statement of the nature of economics seems to have passed unnoticed in the literature. Happily, similar ideas were being formulated at about the very same time by the celebrated Italian philosopher, Benedetto Croce. His views were set down with rather greater painstaking precision and expounded against the background of a fully articulated general philosophical and epistemological system. As such, Croce's position has attracted the attention of a number of subsequent writers. It has not always been appreciated, however, how closely Croce's view of economics mirrors the praxeological outlook. This feature of Croce's ideas on the nature of economy and economics is brought clearly into focus by their juxtaposition with the radically different views of Pareto, with whom Croce conducted an elaborate exchange of opinions on the subject. A brief review of Croce's opinions as expressed in this published correspondence will at the same time provide a remarkably clear, if not complete, statement of the view of economics as a science of human action.

The root of the difference between the outlook of Croce and that of Pareto, and the source of their celebrated debate on the nature of economics, is to be found in their attitudes towards teleology. According to Pareto, the act is a subject for science only in so far as it yields “facts and concrete cases.” According to Croce, on the other hand, the act is aimed at a purpose, and economics obtains its distinctiveness and its homogeneity from this characteristic of the act itself. Croce's crusade against the behaviorism of Pareto5 a took the form of a vigorous rebellion against the latter's injunction to economists to confine their attention to the “result of action” and to leave the “nature” of action for the metaphysicians.6

Pareto's position, Croce complains, itself involves an implicit metaphysical postulate. It is implied that the facts of man's activity are of the same nature as physical facts; that in both cases regularities can be observed and consequences can be thereby deduced, but that the “inner nature of the facts” can never be exposed.7 Upon the testimony of experience, however, Croce insists on the fundamental distinction between the physical and the mental, between mechanics and teleology, between passivity and activity. From this point of view, it is of the utmost relevance (Pareto's statements to the contrary notwithstanding) to recognize that the choice with which economics is concerned is not simply “the fact of choice,” but the fact of conscious choice. And because the economic fact is a fact of conscious choice, a fact of will, its “inner nature” is not at all obscure. The nature of economic activity is grasped as immediately as is the nature of the operation of willing. An act is economic in so far as it is the consistent expression of a man's will, of his conscious aiming at a perceived goal.8

From Croce's position on the nature of economic activity flows immediately his praxeological conception of economic science. The purposefulness of human action—a category to which nothing in physical science corresponds—is the unique element that invests economic science with its individuality. The propositions of economics relate to the effective execution of the purposes willed by the actor. They are not descriptions, but theorems in the sense that they follow rigorously and necessarily from the postulated systems of ends and means. “Economic Science ... is a mathematic applied to the concept of human action ... It does not inquire what human action is; but having posited certain concepts of action, it creates formulae for the prompt recognition of the necessary connections.”9

Croce's ideas will have been perhaps more fully set forth when we shall have considered his contributions to several points of detail in the praxeological conception of economics. Although his stature as a thinker drew more academic attention to these ideas than had been given to those of Sherwood, Croce's impact on the development of economic methodology has to this day not reached its full potential. Writings during the last half century on the proper conception of economic science could in many instances have greatly benefited from familiarity with Croce's work in this field. One author whose writings do deserve a place in any discussion of the evolution of praxeological ideas, although his contribution in this respect scarcely approaches that of Croce, is Max Weber.

[[2]]For such early glimpses of the possibility of a science of human action, see H. Storch, Coursd'économie politique (St. Petersburg, 1815), I, ii; R. Jennings, Natural Elements of Political Economy (London, 1855), p. 41, where political economy is described as “a science of human actions”; W. E. Hearn, Plutology: or the Theory of the Efforts to Satisfy Human Wants (London and Melbourne, 1864).

[[3]]Sidney Sherwood, “The Philosophical Basis of Economics, A Word to Sociologists,” Publications of the American Academy of Political and Social Science, October 5, 1897.

[[4]]See further above, ch. II, in the section entitled “The Science of Subsistence.”

[[5]]See, however, T. Parsons, “Economics and Sociology: Marshall in Relation to the Thought of His Time,” Quarterly Journal of Economics, February, 1932, p. 340, for the emphasis on that aspect of Pareto's thinking which cuts him off from economic behaviorism.

[[6]]See International Economic Papers, No. 3, pp. 190, 204.

[[7]]For a similar charge of implicit metaphysical bias in the position of those denying the concept of human action, see L. Mises, Theory and History (Yale, 1957), pp. 3 f.

[[8]]The writings of R. G. Collingwood reveal some similarity to Croce's views. See, e.g., his “Human Nature and Human History,” Proceedings of the British Academy, Vol. XXII (1936): “The self-knowledge of reason is not an accident; it belongs to its essence.” See also his “Economics as a Philosophical Science,” Ethics, Vol. XXXVI (1926).

[[9]]B. Croce, Philosophy of the Practical (English ed.; London: Macmillan & Co., 1913), pp. 365–371. For a brief exposition of the position which Croce's views on economy occupy within his complete system of philosophy, see G. Tagliacozzo, “Croce and the Nature of Economic Science,” Quarterly Journal of Economics, May, 1945.