The a priori method in economics – In defence of Ludwig von Mises (essay)

Ludwig von MIses

Ludwig von Mises
(Ludwig von Mises Institute)

I gave a speech on this topic at the Libertarian Alliance in March. A link to the video recording of that speech is here. The following essay covers similar ground but is not identical with the speech. I develop the argument differently here. My hope is that this text is a better articulation of my views and hopefully a good basis for further debate.

The topic of this essay is broadly the method of economics: What phenomena does economics deal with? How do economists develop and test economic theories? What type of statements are the “laws of economics”, and what are they useful for?

Such far-reaching and deep issues cannot be covered adequately in an essay, so the following must remain a brief outline. The position I take on these questions is that of Ludwig von Mises, whose views remain controversial to say the least, even among many who are otherwise sympathetic to his positions (as, for example are David Ramsey Steele, David McDonagh, and J. C. Lester, all of whom I rate highly as writers and libertarian thinkers. See Steele From Marx to Mises and here and here, and Lester Escape from Leviathan).

Brief sketch of Mises’ position

Mises argued that economics was an a priori science. Economics is fundamentally different from the natural sciences in terms of subject matter, method, and the type of statements it can make. The natural sciences are (mainly, at least) empirical sciences (a posteriori as opposed to a priori). Economics is not an empirical science. It does not discover the regularities that constitute its laws through observation (for example, the collection and interpretation of statistics) or laboratory experiments (difficult in economics) but through careful logical deduction from certain starting propositions (axioms), although some observation may be involved in establishing these starting propositions. Because it is not an empirical science, it does not make empirical predictions and its key theses are not testable by empirical means. (If this sounds strange to you, don’t worry. Most economists today disagree with Mises and practice, or believe they practice, a different kind of economics, though in my view, they are quite mistaken. A lot of what is presented as “economics” to the public today does not quite deserve the label and is often intellectually weak. All this will hopefully become clearer soon.)

So is it useful? Yes, very much so, in fact, it is indispensable. Economic theory is antecedent to experience (a priori Latin: “from the earlier”). It provides a tool for understanding experience, for making experience intelligible in the first place, in this case the experience of economic phenomena, which are by definition complex phenomena. Without the laws of economics, we could not speak intelligently about observed market phenomena, make sense of what happens around us in terms of economic behavior, and in any reasonable way collect, organize and interpret economic data. Economics provides the essential abstract mental tools (which are necessarily independent of time and space, and thus generally valid) for approaching a specific situation in real life and dealing with a specific real-life problem of economics.

The laws of economics provide a searchlight, a type of X-ray, that illuminates the bony structure underlying all economic phenomena, the patterns and regularities that are at work in all human action as it relates to economic goods. (Mises famously defined economics as a subset of a wider science of human action in general, which he called praxeology, but for the purpose of this essay I stick to the narrower field of economics.)

“Falsifiability” through experience

As economics so defined is general, abstract and prior to experience, it cannot be falsified by experience, which means it is not “testable” or “refutable” in the way that most natural sciences are, and which has become in fact the generally accepted definition of what makes an inquiry a scientific inquiry in the first place, namely for the scientist to come up with testable hypotheses that can be falsified through experience.

It is this aspect that most riles many economists (the few that care about the epistemology of their science), other social scientists, and many epistemologists and philosophers. If the economist produces stuff that cannot be falsified empirically, so this criticism goes, then he may either produce tautologies (he simply re-arranges his starting axioms) or arbitrary nonsense, maybe both, and he can go on repeating it because the alleged non-falsifiability of it immunizes it against refutation.

In the following I will try and defend Mises. I believe that his position on the method of economics is correct. This topic is also extremely relevant, in my view, for any discussion of economic phenomena and ultimately for any policy discussions. We need to understand what economics can do and not do, and how it can go about its business reasonably and intelligently.

Importance and examples

It is important to stress from the start that Mises did not suggest that this method should be adopted, or that this was a method that should distinguish the Austrian School economists from other economists; that this was one available method next to others, and that the a priori one was just better than any alternatives. He claimed – correctly, in my view- that this was the method of economics. All the key tenets of economics developed over 300 years of systematic economic investigation, from Cantillon to Hume to Adam Smith to Ricardo to Carl Menger, were of such an a priori nature. Observation might have led these economists to develop their theories. Observation might have provided an initial spark; provided ideas or aroused interest. But economic theory proper is always logically derived from human conduct; it tells us something about the logic of action. To be an economist in the sense of being an economic theoretician is to think in terms of a priori concepts. To apply the laws of economics to specific economic problems in a given situation is to apply again a priori concepts. Some examples may help illustrate this:

The law of diminishing returns is an a priori law. It is essential for any analysis of real life economic situations. If economics were an empirical science and if its laws were subject to empirical testing, must we not fear that tomorrow we might encounter a maverick economic good to which the law of diminishing returns did not apply? This is impossible. An economic good that was not subject to the laws of diminishing returns would not be an economic good, as there would be no reason to economize on it. Being an economic good means being subject to the laws of diminishing returns.

Interest is the phenomenon that we value the same or similar goods differently if they are available at different points in time, and specifically, that we value future goods lower than present goods. If economics were an empirical science, would we not have to fear that tomorrow we encounter a group of people to whom that law did not apply? No, this is impossible (at least as long as these people have not yet discovered the secret of eternal life). Interest follows directly from time preference, and time preference is an integral part of what constitutes an economic good. “To want something means to want it, all else being equal, sooner rather than later” (George Reisman). Or, to put it differently, to be indifferent as to whether you enjoy a good today, in five years time, or in twenty years time, is equivalent to not caring about it, which means, the good in question is not an economic good to you in the first place. “Economic good” means you care about it, which means you experience time preference in relation to this good, which means the concept of interest applies to it, which means all a priori laws of interest apply to it.

Ricardo’s law of comparative cost has led to the law of association, which shows that it is advantageous (always marginally wealth-enhancing) for individuals and groups of individuals (nations) to engage in cooperation via free trade, even if one or more members of this trade network do not possess any comparative advantage, meaning their marginal productivity is lower in every relevant area than the marginal productivity of other members. Even then, everybody benefits from the inclusion of this member/these members in the network. This law is ultimately derived from the law of marginal utility, of which the law of diminishing returns is a subset. If economics were an empirical science, would we not have to fear that tomorrow we might encounter a group of people to whom the law of association did not apply? That is, again, impossible. Wherever there is trade in economic goods, to which the laws of marginal utility apply (otherwise they wouldn’t be economic goods), the law of association applies. The law of association is a priori. It is not subject to empirical testing but is logically derived from the key tenets of economic action and it is therefore a tool for making something as complex as trade and cooperation of people with different skills intelligible in the first place. (It is also the most powerful argument against any type of restriction to free trade.)

Let’s take an example from the field of money. David Ramsey Steele who is very knowledgeable about Mises and generally sympathetic to his work but rejects Mises’ apriori-ism, correctly emphasizes in his book and also here that it is often difficult to ascertain precisely which financial assets fulfil the function of money at a specific time and place. Over time, what is used as money has changed, and in a modern economy with a highly developed financial system the distinction between money and non-money can be blurred. Seemingly safe assets for which very liquid markets exist have occasionally assumed the role of quasi-monies. However, these are not problems of economic theory but of application of theory to specific situations. Once we ascertain what is used as money in a specific economy at a specific time, the laws of money as specified my monetary theory necessarily apply to this form of money.

Money is a medium of exchange, a facilitator of trade that is so widely used by the public that money prices also function as a reasonable basis for economic calculation and the monetary asset itself frequently as a store of value. Because money is the medium of exchange, demand for money (cash balances) is demand for readily exercisable purchasing power, and any changes in money demand can therefore in principle be met by changes in the purchasing power of the monetary unit and therefore without any additional production of money. At different purchasing powers the same quantity of money can satisfy different degrees of money demand, something that non-money goods cannot do. If economics were an empirical science, would we not have to fear that tomorrow we might encounter a form of money that was a maverick and that would falsify this rule, or to which this rule would not apply? No, this is nonsensical. By determining that something is money we also imply that changes in demand for it can be met by changes in its price. This is a priori.

Are these not simple tautologies? Are we not re-stating what is already entailed in the original concepts? – In a way yes. Mises was quite ready to accept this. We may label them tautologies but it does not make these deductions trivial, useless or arbitrary. In fact, more elaborate theories can and should be built on these basic theories. These theories are the keys to unlocking the logical structure inherent in all economic activity. As we are all economic actors we experience and we use these concepts daily, mostly without much further reflection. But the economist illuminates the underlying regularities and laws of economic action and makes intelligible the patterns that are necessarily at work.

Mises was not proposing a new method of economics. He was clarifying what it meant to do economics. As economics is a fairly young science (Mises said the youngest of all the sciences), it does not have a long history of epistemological analysis. Many of those who thought carefully about how economics works as a science came indeed to conclusions that are similar to Mises’: Nassau William Senior, John Stuart Mill, John Elliott Cairnes (maybe closest to Mises), Frank Knight, and Friedrich von Wieser. But Mises argued this position most consistently and convincingly.

What about modern mainstream economists?

Most modern economists appear to be doing something completely different. They are evidently using copious amounts of statistical data and applying mathematical procedures to it. How does this relate to what we just said?

Statistical data always describes historical events. It shows us what happened in a specific place at a specific time. It is impossible to approach statistical data, and to organize and interpret it without any theory whatsoever. Theory-free statistical analysis is impossible. The combination of (correct) a priori theory and historical data may allow us to understand what happened in the past, including the very recent past. Following Steele (as referenced before) we may, for example, try and understand to what degree liquid AAA-rated floaters functioned as near-monies in the run-up to the 2007 financial crisis. Or we may analyze how consumer good prices and producer goods prices behaved in the United States from 1929 to 1933. Or we may try to quantify the extent to which QE has probably lowered the borrowing costs of the state over the past 5 years.

What we cannot do is two things: We can neither verify nor falsify the a priori laws of economics, such as the ones listed above. Even more important (and potentially disappointing to those who derive their expectations as to what science is all about from the natural sciences) we cannot derive the laws of economics from mere observation, and that includes even the most extensive collection of data and the most elaborate and sophisticated analysis of it. The economists who claim to do this are either confused or simply play to the gallery (Piketty?) and are frequently not really proper economists, although some of them may even win Nobel Prizes. This may sound harsh but I believe it is true. The reasons for why we must fail to achieve these two things (test/verify/falsify economic laws and discover economic laws through statistics) are fundamental and I will give them below. Of course, if economics were a natural science, if it were an empirical science, these two things would not only be possible, they would be essential to its modus operandi as a science. Crucially, economics is not an empirical science in the sense that the natural sciences are.

This is in fact the reason why no amount of data mining and statistical analysis will ever settle disputes in the field of economics. Keynesian economists will forever quote historical data from around the Great Depression as evidence of their crisis theories and policy recommendations, just as those who subscribe to monetary explanations of the business cycle (as we “Austrians” do) will forever cite the same or similar data in support of their theories. It is a common complaint that anything can be proven with statistics, and in the field of economic debate this seems to be true to a large degree. (I subscribe to the “Austrian” explanation of economic crises not because it fits the data better but because it fits the principles of economics, the laws of economics that allow us to analyse the cycle in the first place. A detailed analysis of Keynesian theories leads to conflicts and mismatches with some key economic principles. This makes this theory much less convincing.)

Paul Krugman, praxeologist?

Any serious discussion of economic matters must ultimately drill down to first principles, to the a priori level. This means that every economist is ultimately forced to use Mises’ method, even someone like the belligerent archtypical Keynesian Paul Krugman, who would not want to be associated with any tenets of the Austrian School. But if we discussed an economic issue with Paul Krugman long and hard enough, and assuming for a moment the honest intention on both sides to get to the heart of the matter, we would ultimately have to arrive at the level of fundamental theory.

In the 1990s, Paul Krugman was known as a free-trade Keynesian. When financier Sir James Goldsmith published his anti-free trade pamphlet “The Trap” in 1994, Krugman criticized it and Krugman correctly pointed out that Sir James failed to grasp even the basics of trade. Appropriately, Krugman referred Goldsmith to Ricardo’s work and the great economists’ essential a priori insights as to the benefits of trade, benefits that must even accrue to allegedly “inferior” (less productive) trading partners (see my earlier point on Ricardo’s theorem). Ricardo, who had then already been dead for 170 years, did not have the better data but the better theory, as Krugman rightly acknowledged.

Because of the very nature of its subject matter – purposeful human action as opposed to natural phenomena – economics can, on the one hand, make incredibly powerful generally valid statements about human action of the kind of “no country can lastingly be a loser in free trade”, or “no minimum wage law can lastingly improve the material position of those on lower income”, which are true regardless of time and space, while, on the other hand, it cannot make the type of statements, in particular specific predictions, that one is used to from the natural sciences, such as “if the price of chocolate goes up by X, demand for chocolate will go down by Y”, or “if the minimum wage is raised by a unemployment will go up by b”, or “if the central bank doubles the money supply, the prices of milk will go up by Z, and the average wage by M.” (To solve these problems, we usually use entrepreneurs and speculators, not economists.)

Those who are disappointed by the latter and do therefore not consider economics “scientific”, unfortunately close their minds to the deep insights that can be derived from proper economic theory correctly applied.

Economic science versus natural science: The fundamental difference

“’All daffodils I have seen have been yellow, so the ones I have still to see will probably also be yellow’; refinements apart, the generalizations of natural science all rest on reasoning of this type, and none of them are certain, in the sense that we can see them to be necessarily true.” (Brand Blanshard, Reason and Analysis, 1962).

Natural scientists observe that A always coincides with B and make inferences from this “coincidence”. In analyzing inanimate objects and instinct-driven non-human animals, this has been a very powerful technique. Why? – Because in the “natural world” there appear to be many regularities and reasonably stable relationships that allow us to make these inferences. Or, to put it differently, the natural world does not know valuing, purposeful behavior, or “free will”. This changes fundamentally when we introduce human action.

Humans appear to be unique in that they consciously act, that is, evaluate a situation, make choices, purposefully interfere with their surroundings, and consciously re-shape part of their environment. At the core of this process is the act of valuation, of preferring one thing to another. None of this is observable in non-human affairs. It is the unique feature of human action, and human action itself (not the consequences of it in the physical world) is the subject matter of economics. As Mises pointed out, one day we may be able to determine which chemical or physical processes cause a person to prefer A to B in a specific situation, but until we have done so there remains an unbridgeable gap between natural phenomena and the phenomena of human action, and they require fundamentally different techniques (this is called methodological dualism). When dealing with humans we have to assume an element of “free will”.

Put in the same or similar situation, two people may value and act differently, and the same person may value and act differently at different times. (This does, at this stage, not even relate to David Ramsey Steele’s points about rationality or consistency of preferences, as raised here.) Furthermore, the complexity of the world we experience as humans means that we can certainly not “step into the same river twice.” If people responded to the rise in chocolate prices one way in the past, they may still respond differently the next time. But all that observation of history (statistics) can do, is ascertain how they acted at a specific time and place. The problem is simply that people are not automatons, billiard balls, light rays, or amoebae. They do not respond simply to stimuli.

This puts the student of human action at a disadvantage to the natural scientist in one respect – namely, that he or she cannot assume the stability of observable relationships in the same way that the natural scientist can – but also provides a fundamental advantage: The scientist is himself or herself a rational human being, and as a social scientist uses human reason to analyze rational human behavior. While the natural scientist remains forever outside the very forces he observes (he or she never has access to those “prime movers” that make billiard balls behave the way they do), the economist (or praxeologist) can relate to what he or she observes in a much deeper way.

It is, I hope, now becoming clearer, why the laws of economics are of the nature they are, that is, a priori, as illustrated before. They reflect the inherent logic of rational behavior and are thus essentially restatements and careful further elaborations of the starting axioms that man prefers one thing to another, that he values and then acts. Notions such as economic good (and therefore marginal utility), time preference (and therefore interest), cost, benefit, profit, loss, are all logically deducted from these axioms.

The a priori in natural sciences

When one raises the issue of the a priori in economics there is usually a lot of push-back from natural scientists and this seems to reflect the harsh treatment the a priori concept had to endure in their discipline in the 20th century at the hand of the philosophy of analysis, of logical positivism and extreme empiricism. A priori concepts had always been indispensable for making sense of things, including natural phenomena, but particularly since David Hume there has also been doubt as to the validity of these concepts and their ability to tell us anything meaningful about reality. This skepticism was taken to new extremes in the 20th century. The question was raised whether the standard tools of abstract human reasoning, such as logic, mathematics, and geometry, that is, the classic a priori disciplines, did even meaningfully correspond to anything in the real world at all. Bertrand Russell seemed to have had this in mind when he said: “I thought of mathematics with reverence and suffered when Wittgenstein led me to regard it as nothing but tautologies.” Or, as Einstein said: “As far as the theorems of mathematics refer to reality, they are not certain, and as far as they are certain, they do not refer to reality.”

A key event behind this new trend seems to have been the discovery (by Bolyai and Lobachevsky) of non-Euclidean geometry, which seemingly knocked the undisputed paragon of a priori thinking of its pedestal. Here was the former superstar of a priori reasoning: entirely man-made, a creation of abstract thinking, yet a powerful and indispensable tool for dealing with the real world: Euclidean geometry. But after a more than 2,000-year unassailable reign it now had to face a newcomer. Today it seems to be widely agreed that Euclidean geometry is still useful for building bridges on earth but that when it comes to analyzing big stuff in space, the new type is much better.

Should this shake our faith in the a priori method in economics? – No, said Mises. First of all, the idea that the tools of human reasoning are often just adequate rather than perfect did not surprise or shock Mises. “There is no such thing as perfection in human knowledge, nor for that matter in any other human achievement. Omniscience is denied to man. The most elaborate theory that seems to satisfy completely our thirst for knowledge may one day be amended or supplanted by a new theory.” (Human Action, Introduction) But importantly, the arrival of a new geometry did not mean that these a priori concepts were just arbitrary or simply the result of convention. We could not redesign a new geometry at will. In fact, to Mises, the history of geometry showed that the human mind was quite capable of developing a priori concepts that did meaningfully respond to the real world (as Euclidean geometry still does, even now that it has lost some of its luster).

And furthermore, the epistemological problem of whether or to what degree the products of abstract human reasoning correspond to the physical universe may trouble the natural scientist, but it is in fact irrelevant for the economist. As we have seen, the economist deals with purposeful human behavior, with human rationality at work (and, again, not even with the physical manifestations of human action, but with the inner logic of human action). He or she applies human reasoning to the work of human reasoning. In the “natural world” there may be no self-evident truths that allow for any necessarily valid deductions. Here, the human mind must always guess. But, to the human mind, rational human action is the ultimate self-evident truth, and here necessarily valid deductions are not only possible, such a priori inferences are the only statements we can make with any certainty.

There is, of course, much more to say about this important topic but I hope that the above provides at least a good basis for further discussion. The last word belongs to Mises:

“…the sciences of human action differ radically from the natural sciences. All authors eager to construct an epistemological system of the sciences of human action according to the pattern of the natural sciences err lamentably.

The real thing which is the subject matter of praxeology, human action, stems from the same source as human reasoning. Action and reason are congeneric and homogeneous; they may even be called two different aspects of the same thing. That reason has the power to make clear through pure ratiocination the essential features of action is a consequence of the fact that action is an offshoot of reason.” (Human Action, Chapter II).

 

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Comments

  1. Swissie says

    Economics as defined by Mises deals with logical relationships between purely ideal entities. That is why economics is as apriori as mathematics itself. Economics is basically a very small subset of mathematical logic, a subset relevant to human action and interaction. (Interstingly, axiomatic Austrian economics was developed at the same time and partly at the same place as axiomatic mathematics.)

    This logical apriori nature is the strength of economics, and at the same time its weakness: Because naturally, many people would like to apply economic logic to the real world. And here they face two limitations: Unknown initial and boundary conditions, and the uncertainty of human action.

    This is why economic logic is, in general, not capable of making precise (let alone numerical) predictions. The real-world answer of an economist is usually ‘it depends’. Will minimum wages raise unemployment? It depends.

    Some economists thought they can fix this weakness by observation and statistics. And to some extent they can, but the real world is too complex to fully achieve this goal. It is usually not ‘ceteris paribus’. In the process, the annoying uncertainty of human action got replaced by ‘homo oeconomicus’, which has proved rather disastrous. After all, humans are fundamentally driven by their limbic system, not by their neocortex.

    Worst of all, some post-Mises ‘economists’ tried not to extend, but to replace sound economic logic by statistics to justify their many manipulations and interventions. Yet you can never win against logic.

  2. Swissie says

    On the apriori nature of mathematics (and hence logical economics as a subset), I recommend Henri Poincare ‘Science and Hypothesis’ (1904, the book Einstein read prior to formulating Special Relativity) and Nunez/Lakoff ‘Where Mathematics comes from’ (1999, modern cognitive science). And please forget Wittgenstein… ;-)

    Should Austrian Economics be renamed to ‘Locial Economics’ vs. empirical, statistical, fake economics etc.? Or to ‘Economic Logic’? Then maybe it can be sneaked into acadmic curriculums, at the math or science department, as the economic departments will never accept it…

  3. Adriano says

    Why not “Rational Economics”???
    Like “Rational Mechanics” (also known as “Analytical Mechanics”) which is after the research in mechanics as a deductive, mathematical science as opposed to the same branch of physics…

    • Swissie says

      yes, Rational Economics also came to my mind… also linking it to Popper and his Critical Rationalism, who ultimately removed induction and verification from the scientific repertoire (at least as far as universal statements, i.e. scientific laws, are concerned). It appears to me that some of the ‘empirical economists’ still operate in a pre-Popperian framework, 80 years after Logic of Scientific Discovery…

      Analytical Economics is also nice. Both terms seem to be established only moderatly. Rational Economics in the sense of rational choice economics as opposed to behavioral economics, Analytical Economics as a kind of MIT-style mathematical economics, going back to “Cournot’s 1838 classic, Researches into the Mathematical Principles of the Theory of Wealth”:

      Behavioral vs. Rational Economics

      The End of Rational Economics

      Quasi-Rational Economics

      Nobel Prize Speech from MIT’s Paul A. Samuelson 1970: Maximum Principles in Analytical Economy

      I noticed that Mises.org already used ‘Economic Logic / Logical Economics’ in reference to LVM Human Action Chapter 16.5 ‘Logical Catallactics Versus Mathematical Catallactics’:

      2009 reprint of the chapter: Mathematics Versus Economic Logic

      2001 essay by Gene Callahan: Logical Economics vs. Mathematical Economics

      Whether Rational, Analytical or Logical Economics, I propose that Detlev becomes the first professor of this field (do you already have a PhD?).

      Anarchists will argue that Austrian Economics should never be taught at a state-financed university, yet I found out that I’m a Minarchist, so I don’t have a problem with it… ;-)

  4. Swissie says

    LVM at its best (HA 16.5). Note that he calls himself a ‘logical economist’. What a pity his prophetic words have been totally ignored over the past 70 years…

    “There have even been economists who held that the only appropriate method of dealing with economic problems is the mathematical method and who derided the logical economists as “literary” economists. If this antagonism between the logical and the mathematical economists were merely a disagreement concerning the most adequate procedure to be applied in the study of economics, it would be superfluous to pay attention to it. [...] However, this is not a dispute about heuristic questions, but a controversy concerning the foundations of economics. The mathematical method must be rejected not only on account of its barrenness. It is an entirely vicious method, starting from false assumptions and leading to fallacious inferences. Its syllogisms are not only sterile; they divert the mind from the study of the real problems and distort the relations between the various phenomena.”

    “There is in the field of human action no means for dealing with future events other than that provided by understanding.”

    “[The logical economist] shows how this process would finally result in the establishment of the evenly rotating economy. This is the task of economic theory. The mathematical description of various states of equilibrium is mere play. The problem is the analysis of the market process.”

  5. Federico says

    Great article Detlev; and a thank you to Swissie too. The epistemology of economics is as fundamental as it is neglected.

  6. Siegfried says

    This makes absolutely no sense, you cannot argue like this:

    1. Euclidian Geometry is a priory true.

    And when it comes out that Euclidian Geometry is false, then say:

    2. “The most elaborate theory that seems to satisfy completely our thirst for knowledge may one day be amended or supplanted by a new theory.” (Mises,Human Action)

    If the above sentence of Mises is really about Euclidian geometry,
    here has happend what was denied before, namely that euclidian geometry was falsified by experiment, or how could that “knowledge be amended” if not by empiric facts.

    Best Regards,
    Siegfried from Germany

    • says

      I do not think that it is correct to say that Euclidean geometry is “false”. It has not been falsified, to the best of my knowledge, and it has not been falsified by experience. You can still use Euclidean geometry to build bridges and buildings here on earth, and they won’t collapse instantly, so it is useful knowledge applicable to real-life situations. However, we now know that alternative geometries are conceivable (logically consistent) and that they are more useful in certain situations. For example, they appear to be better approximations of reality when we deal with very large objects in space (at least this is what I have been told or read somewhere; sorry but I am no expert on this).
      I think that this is what it boils down to (and I believe that this is largely consistent with what Mises believed): When dealing with the world around us we must apply some mental concepts that precede experience. These “a priori” concepts are tools with which we generate experience. As Kant has pointed out, concepts such as time, space and causality are a priori; they do not result from experience but precede experience. And we have developed more extensive a priori systems such as logic and mathematics. How well do these “a priori” systems correspond to the real world around us? Probably not perfectly but probably reasonably well (see Euclidean geometry). But importantly, they are not arbitrary and we cannot make new systems at will. They are more than mere conventions. Economics is different from all of these, however. Economics deals with the logic of human action. It does not deal with the outside world but with the “inside” world of rational, purposeful human behavior. As such it is “a priori” (logically derived from key axioms; antecedent to experience; not falisfiable through experience) but with a better claim on being “absolutely true” than systems like geometry.

      • Siegfried says

        ‘I do not think that it is correct to say that Euclidean geometry is “false”.’

        OK, I will try to clarify my statement:
        Before Einstein and Riemann, it was believed that euclidian geometry is the correct way to desribe our world. Kant said it was “a priori”, so there was no way of even thinking that it could be incorrect.
        To me, “an priori” statement means, that it has to be true both in the past and in the future and in every spot in our universe.

        This has clearly been falsified, because a realm was found which could only be described correctly by noneuclidian geometry. And the noneuclidian geometry used by Einstein contains euclidian geometry as a very special case.

        “It has not been falsified, to the best of my knowledge, and it has not been falsified by experience.”

        It has been falsified when Arthur Eddington took some pictures of the region around the Sun during the solar eclipse of 29 May 1919. It came out that the sun bent the light beams when they passed the vicinity of the sun on their way to the earth.

        And to stress another point, he used only a camera, which was built using euclidian geometry.

        “You can still use Euclidean geometry to build bridges and buildings here on earth, and they won’t collapse instantly, so it is useful knowledge applicable to real-life situations. ”
        That is irrelevant for the question if euclidian geometry is correct in general,
        which it is definitely not.
        Siegfried

        • says

          But you do not know if non-Euclidean geometry is “true in general” either. One day it may meet the same fate as Euclidean geometry. All of this is conjecture. Therefore, I believe that all we can say is that any knowledge of the outside world is conjecture. Non-Euclidean geometry is, as you suggest and I cannot argue with this, a better approximation of reality than Euclidean geometry. But economics as a theoretical science deals with the logic of human action, the logical structure of rational behavior, not with natural phenomena. It is not geometry, and not physics either. So none of this, I believe, refutes Mises’ position on economics.

          • Siegfried says

            Hello Detlev,
            First of all, we have to distinguish between the “Theory realm” (Mathematics, theoretical physics and so on) and the Real World realm. (The outer world around us.)

            “But you do not know if Non-Euclidean geometry is “true in general” either.”
            The “Non-Euclidean Geometry” as a theory is perfectly correct. (It lives in then “Theory realm”)

            Non-Euclidean Geometry has shown that it can used to describe all the phenomena of the outer world including the things which can also described with Euclidean Geometry.

            “One day it may meet the same fate as Euclidean geometry.”
            Sure, but only through experiments like the one done by Eddington.

            “I believe that all we can say is that any knowledge of the outside world is conjecture. Non-Euclidean geometry is, as you suggest and I cannot argue with this, a better approximation of reality than Euclidean geometry.”
            I would agree to this.

            “But economics as a theoretical science deals with the logic of human action, the logical structure of rational behavior, not with natural phenomena.”
            But here I have a question:
            Does “But economics as a theoretical science” mean that it belongs to the “Theory realm”?

            Siegfried

          • says

            Every science is part of the “theory realm”, and so is economics. But it also helps us to act rationally in the real world. Example from my essay: Any change in money demand can, in principle, be met by changes in money’s price rather than by changes in the (physical) supply of the monetary asset. This is not contingent on observation but on the definition of money. It follows from what we consider to be money. It is logically inherent in the concept of money. Is this tautological? – Yes, but it is not trivial and not useless in the real world.
            By the way, non-Euclidean geometry was not discovered through observation but – like the Euclidean one – through abstract reasoning by Bolyai and Lobachevsky in the 19th century, long before the experiments you mentioned.

  7. Siegfried says

    Hello Detlev,
    “By the way, non-Euclidean geometry was not discovered through observation but – like the Euclidean one – through abstract reasoning by Bolyai and Lobachevsky in the 19th century, long before the experiments you mentioned.”
    OK, interesting point.

    “Every science is part of the ‘theory realm’, and so is economics.”

    OK, I want to be absolutely sure that I understand this correctly:
    For example, the “humans” in the term “Human Action” and all the other objects which the Theoretical Science is all about, (for example dices, money, goods and returns) are pure theory and are “inhabitants” of the theory realm, like numbers and triangles in pure mathematics?

    Is that statement correct?

    Siegfried

    • says

      No, that statement is not quite correct. But first of all, I don’t think you should try to understand economics via pure mathematics or theoretical physics. Economics is different from both. As to your statement, economics does not deal with objects such as “money” or “humans”. Economics deals with human action, that is rational, purposeful human behavior. Economics deals with human rationality in action, so to speak. For example, monetary theory deals with why we use a social tool like money in exchange and with what logically follows from that. Therefore, the dichotomy of “theoretical realm” and “outside realm” doesn’t apply. There is no theoretical realm or outside realm for human rationality. As an economist you never leave the realm of human rationality. Using money is not rational in theory, but not not rational in practice. For the economist, “money” is only of interest as it relates to the human mind and human decision-making, and for the human mind or human decision-making your dichotomy of “theoretical realm” and “outside” realm is meaningless. To say, for example, that when you have a higher money demand you can meet that demand by reducing your money-spending or by selling non-money goods for money, is making a statement about rational conduct, and it does not make sense to confine this to the theory realm or the outside realm. It is equally a statement of theory and a guide to practical conduct. — In another respect, your statement has some truth to it. Like pure mathematicians economists arrive at their theories via ratiocination, through abstract reasoning.

      • Siegfried says

        Hello Detlev,
        “But first of all, I don’t think you should try to understand economics via pure mathematics or theoretical physics.”
        I did not try to do this. I was trying to find out what kind of “thing” (to bypass the word “theory”)
        your “economics” is.

        “Economics is different from both. As to your statement, economics does not deal with objects such as ‘money’ or ‘humans’. Economics deals with human action, that is rational, purposeful human behavior.”

        But, the term “Human Action” implies at that there must be at least one human being who does perform this “Human Action”. And I presume, that it is not your neighbour, not a real person, which is taking that action, it must be some “imaginary human” and he or she is therefore living in the “theory realm”, at least not to the “Real world”.

        I cite form the text above:
        “Economics provides the essential abstract mental tools (which are necessarily independent of time and space, and thus generally valid)” .
        These “abstract mental tools” I would call (and probably most people would agree) parts of a “theoretical framework” or parts of a theory.

        “… Therefore, the dichotomy of “theoretical realm” and “outside realm” doesn’t apply. There is no theoretical realm or outside realm for human rationality. ”
        You are trying to convince me that the “theory realm” and the “real world realm” are the same, at least for human action.

        I ask these questions, because in Your video on YouTube about Mises and praxeology, you mix the “theory realm” and “Real world”:
        In Your dice example, You say: “If I rolled a dice …”
        From the words you have chosen it should be obvious that you are talking about a real dice.
        But then, your proposition about the a priory probability (one sixth) is just wrong, because you know nothing about the probabilities of a real dice. In the “Real world”, there is no such thing as an a priori unloaded dice. If you want to know anything about the probabilities of the real dice, you have to test if it is loaded.

        The same goes for your counting or adding example:
        1 + 1 = 2 is only true for numbers and for other mathematical objects which have some special properties. Actually, it does say nothing about the real world, see the statement of Einstein.

        In the real world there are surely many cases of objects for which this kind of addition is working, but you have to check very carefully, what type of objects you whish to add.
        Lets say, you “add” two clouds, is the result one cloud or two clouds?

        I watched several videos about austrian economics and praxeology, many of them use these examples (also the euclidian geometry example) for a priori thinking, but none of these examples does work.

        Best regards
        Siegfried

        • says

          I think you are confused about the a priori method and potentially about theory in general. Every theory is abstract and general. Every theory tries to articulate general principles. Of course, a specific real life dice may be loaded. How can you find out if its loaded? By testing it against the a priori probability thesis. If you throw the dice 1000 times and the outcomes conflict with the theory of probability, you would not say that you have just falsified the probability theory, or that you just discovered a flaw in the probability theory, or an exception to the probability theory. You would simply know that you have encountered a loaded dice. This discovery has no implications on the theory of probability or its validity at all. The theory of probability is a priori, you can use it to make meaningful experiences, for example, you can discover if a particular dice is loaded. You can use the probability theory to test real life dices, you cannot use real life dices to test the theory of probability. That theory is a priori. This is exactly my point.
          The same is true for economics. If the economist says, if the quantity of money is expanded, all else being equal, prices will go up, and then, in real life, the quantity of money is expanded but prices do not go up, we know that all else was not equal, that something else must have intervened (most probably, the demand for money went up also), but we would not say that this experience had falsified the original statement and that there was no link between the quantity of money and prices. Monetary theory is a priori. It helps us to qualify experience and make sense of it.
          If the quantity of money goes up, prices may or may not rise in real life (because demand for money may also have changed). If you throw a dice you may or may not get any number 1/6th of the time (because the dice may or may not be loaded). But whatever happens in real life, it does not falsify monetary theory and it does not falsify probability theory (if these theories are correctly derived, i.e. logically consistent). These theories are a priori. They help you to understand what is going on. They help you make sense of experience.

          • says

            Detlev Schlichter,

            (1) “Any change in money demand can, in principle, be met by changes in money’s price rather than by changes in the (physical) supply of the monetary asset. This is not contingent on observation but on the definition of money. It follows from what we consider to be money. It is logically inherent in the concept of money. Is this tautological? – Yes, but it is not trivial and not useless in the real world.”

            Stated in that way it is nothing but an analytic a priori system. And, yes, it tells you nothing necessarily true of any real world instance in which demand for money changes.

            Your problem is that you are using an intellectually bankrupt Kantian synthetic a priori epistemology:

            http://socialdemocracy21stcentury.blogspot.com/2014/05/why-should-we-reject-existence-of.html

            (2) “By the way, non-Euclidean geometry was not discovered through observation but – like the Euclidean one – through abstract reasoning by Bolyai and Lobachevsky in the 19th century, long before the experiments you mentioned.”

            You have carefully distinguish between:

            (1) pure maths as an analytic a priori system (which is necessarily true but only as an abstract system), and

            (2) applied mathematics as a synthetic a posteriori system.
            ——
            Non-Euclidean geometry as (1) a pure mathematical system was indeed created without experience or observation, but the only way we know that non-Euclidean geometry is a true theory of real space is by empirical evidence (or a posteriori).

            (3) Some extended criticism of your talk here:

            http://socialdemocracy21stcentury.blogspot.com/2014/06/detlev-schlichter-on-mises-apriorism.html

          • Siegfried says

            Hello Detlev,
            OK, there seems to be some confusion here. If you don’t mind, I want to try to resolve this, OK?

            In Your dice example in the video, at about 7:30, You say: “If I rolled a dice and I were to ask you about the probability of any given number coming up on the top of the dice, you would probably tell me that its the probability of one sixth, and again, that is knowledge that is inherent in the concept of a dice and of probability.” From the words “If I rolled a dice” for me it seems to be clear, that you were talking about a situation that could happen (or could have happened) in the real world, especially you were explicitly NOT talking about the “theory realm”.

            So, You were talking about the “real world” in that statement in the video?
            Is this correct?

          • Siegfried says

            Hello Detlev,
            I cite from the text above and from Your post:
            “Every theory is abstract and general. Every theory tries to articulate general principles.”
            “Economics provides the essential abstract mental tools (which are necessarily independent of time and space, and thus generally valid)”
            (1) From these statements, I draw the conclusion, that the economics that you were talking about makes statements about humans and these humans are part of your theory, they “are inhabitants” of the “Theory Realm”, and for that, they are in general not identical with humans living in our world. (Like the ideal triangles in euclidian geometry)
            I cannot imagine that You or someone else could deny or refute the statement (1)

            (2) And i I hope, that it is clear to us, that there exists the “Real Realm” or the real world, where You and I live in.
            Nobody can seriously deny stament (2)

            (3) There is no way to assume that these two worlds are identical beforehand, and that it makes no sense to make a distinction between these two worlds.
            You could probably argue, that through a special mechanism or technique, you are able to generate a theory that has similarities with the real world. Depending on that special mechanism, I would probably follow your arguments or refute them.

            “Of course, a specific real life dice may be loaded. How can you find out if its loaded? By testing it against the a priori probability thesis. If you throw the dice 1000 times and the outcomes conflict with the theory of probability, you would not say that you have just falsified the probability theory, or that you just discovered a flaw in the probability theory, or an exception to the probability theory. You would simply know that you have encountered a loaded dice. This discovery has no implications on the theory of probability or its validity at all. The theory of probability is a priori, you can use it to make meaningful experiences, for example, you can discover if a particular dice is loaded. You can use the probability theory to test real life dices, you cannot use real life dices to test the theory of probability. That theory is a priori. This is exactly my point.”
            OK, before the experiment, maybe we had the idea, that by some strange mechanism, it might be ensured that the dice in our hand is one of these ideal dices which show the a priori probabilities.

            But here I have a question, by “That theory is a priori”, are You talikng about “a priori” before a special experiment or “a priori” before every experiment.
            I ask because, every experimental scientist would admit that he has to have a theory before doing an experiment. But scientists would not say that this theory must be “a priory true”.

            So, do You see the distinction between “a priori” and “a priori true”?
            Best regards
            Siegfried

            Sorry that I skip your money example, because I think money is a very complicated topic and I think it helps to keep the discussion simple.

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