Was Mises right?(Ludwig von Mises)

Abstract This paper argues that Mises's methodological position has been misunderstood by both friends and foes alike. On the one hand, Mises's critics wrongly characterize his position as rejecting empirical work. On the other hand, his defenders wrongly interpret his stance as rejecting empirical analyses on the grounds that they contradict apriorism and push economics towards historicism. We show that Mises's methodological position occupies a unique place that is at once both wholly aprioristic and radically empirical.

Keywords: Ludwig von Mises, economic methodology, apriorism

INTRODUCTION

The Austrian school's unique methodological stance separates it from the rest of the economics profession. Methodological subjectivism, recognition of radical uncertainty, and the notion of markets as processes are often cited as defining characteristics of the Austrian approach (see, for example, O'Driscoll and Rizzo 1985; Vaughn 1994; Boettke 1994; Boettke and Leeson 2003). Due to its controversial status, less frequently noted in the modern literature is methodological apriorism. Indeed, throughout the history of the Austrian school, many of its adherents have attempted to distance themselves from Menger's exact laws and Mises's apriorism, while at the same time building on the theoretical insights of these thinkers. Several of Mises's students from the Vienna years, for example Fritz Machlup, attempted to accomplish this two-step maneuver. (1) But to the Austrian economists who trained with Mises during his New York University period (1944-1969), like Murray Rothbard, adherence to methodological apriorism is the distinguishing characteristic of the Austrian school, and alternative methodological positions are interpreted as undermining Mises's strong claim about the nature of economic reasoning. (2)

The Austrian position has long been associated with a bifurcation of knowledge--deductive versus historical method, apriorism versus positivism, etc. We want to suggest that these blunt divisions fail to capture the subtle position that was developed by Menger, Boehm-Bawerk and Mises in the attempt to carve out a unique niche for the human sciences. For most economists, economics was a science located between the natural sciences and the cultural discipline of history. For these Austrians, however, economics was a human science that could derive laws that had the same ontological status as the laws derived in the natural sciences, yet accounted for the complexity of the human experience. Mises did not originate the Austrian position but inherited it from Menger and Boehm-Bawerk and sought to provide an updated philosophical defense of that position (see, for example, Mises 1933).

While Menger and Mises resorted to epistemological argument, Bohm-Bawerk put his argument in more common-sense terms (see Boehm-Bawerk 1891). Here the deductive method is justified on the grounds that in the act of arranging the array of historical facts to construct a meaningful story, the historian must arrange according to some criteria of priority. The criteria, Boehm-Bawerk argued, are provided by theory. The purpose of theory is to aid in the act of historical investigation--not to fight against it. In making this argument, which was (is) the Austrian argument, Boehm-Bawerk carved out a niche where the advancement of human knowledge in the discipline of political economy was neither a product of pure deduction nor empirical induction, but a blending of both.

On this basis we propose a tripartite division of economic inquiry: pure theory, institutionally contingent theory, and economic history and statistical analysis. Each realm of economic inquiry serves different purposes and the knowledge claims being made in each constitute different epistemological moments. (3) Just as we must recognize the empirical component of economic inquiry, we must also recognize the importance of pure theory, which is constructed through logical deduction.

In a science dominated by what many have called "physics envy," Austrian school writers who have insisted on the aprioristic nature of pure economics have often endured a greater marginalization of their status in the eyes of the profession than those economists who have distanced themselves from the aprioristic approach. We contend that this is a serious error born out of the confusion over the different realms of knowledge that constitute economic inquiry.

This paper will explore methodological apriorism as laid out by its most recognizable defender, Ludwig von Mises. We argue that his position is more philosophically sophisticated than either friend or foe has cared to admit. Mises's position is explained as grounded in the practical problems of economic inquiry and a common-sense rendering of these problems as we have just attributed to Boehm-Bawerk. We provide evidence to show how Mises was influenced in his attempt to justify pure theory by the philosophy of Immanuel Kant, and also demonstrate that Mises's application of this idea to the science of economics moves beyond Kant. Specifically, we contend that building upon these developments, Mises eschewed the traditional analytic/synthetic dichotomy, successfully both revealing the illegitimacy of the positivist approach and defending the empirical relevance of 'mere tautologies' in economic science. Finally, we discuss the relevance of Mises's methodological position for modern economic science.

KANT ON APRIORISM

The idea of the synthetic a priori is most famously connected with Immanuel Kant's, Critique of Pure Reason (1958:B1-30). Building on a distinction between the appearance of things and things in themselves, Kant argued that the transcendental deduction of concepts is the most important intellectual exercise for our understanding. Human cognition can be divided into those concepts we come to understand completely independent of experience and those that we come to understand only through experience. Kant argued that the problem that arises in human understanding is how our subjective conditions of thinking could obtain objective validity. This problem, he maintained, is solved through transcendental deduction.

The extreme rationalism of philosophers like Leibniz, Wolff, and Baumgarten, Kant maintained, was wrong. By itself reason cannot teach us anything about the actual world. Without the data of experience, pure logic is at a loss to impart information to us regarding the reality we live in. Similarly, the empiricism defended by scholars like Locke, Berkeley, and Hume, was also incorrect. Facts of the world are never presented to the mind tabula rasa. They can only be understood with the aid of concepts that exist in our mind prior to any experience. In response to both (pure) rationalism and (pure) empiricism, Kant develops the notion of a class of knowledge held by individuals that while known to us a priori nonetheless imparts information about the real world.

Kant contended that a priori axioms known to us apart from experience are embedded in us as categories of the human mind. These a priori concepts are necessary in order to use the human faculty of judgment to understand objects in the world. Indeed, understanding of the world is impossible except through these categories that enable us to make sense of our experiences. According to Kant then, our understanding of objective reality has objective validity via the employment of concepts known a priori. At the basis of all empirical cognition are a priori concepts, without which objective validity would be denied to us. As Kant argued, we do not derive concepts from nature, but interrogate nature with the aid of these concepts. He held that through introspection we are able to realize what our minds already know and can come to discover the a priori categories that shape our thinking and perceptions of the world (Kant 1958: A95-130).

This brief and elementary statement of Kant's position is not meant be complete and clearly does not do justice to the many and complicated nuances of his philosophy. Instead it is meant merely to sketch a crude outline of Kant's…