Austrian Economics Newsletter Fall 1990 • The Ludwig von Mises Institute The Question of Apriorism by Barry Smith I t is often said that Austrian economics embraces what might most properly be ca lled an Aristotelian methodology. Thus Austrian economists typically adopt a realist perspective, holding that the world exists independently of our thinking and reasoning activities. They hold further that the world contains certain simple essences or natures which may come together in law-Hke ways to form more complex static and dynamic wholes. Moreover, they hold that tbe given essences and essentiaJ structures are intelligible, in the sense that they are capable of being noninductively grasped by the scientific theorist, much as we enjoy a capacity to distinguish reds from greens, circles from squares, warnings from congratulations, and so on. The science of economics is for the Austrian Aristotelian, in no smaJI part, a matter of establishing the laws governing the combination or composition of the given simple essences or natures in the field of economics. Such combination is not merely a matter of heaping or gluing together. It is, for example, a matter of certain entities or properties of entities arising in renection of the existence in appropriate combinations of other sorts of entities. Thus, for example, a good exists as such, according to Menger, only if the following prerequisites are si multaneously present: 1. A need on the part of some human being. 2. Properties of the object in question which render it capable of being brought into a causal connection with the satisfaction of this need. 3. Knowledge of this causal connection on the part of the person involved. 4. Command of the thing sufficient to direct it to the satis faction of the need. 1 If a good exists, then as a matter of de re necessity, entities of these other sorts exist also. Such structures of de re necessitation are, I want to claim, at the core not only ofMenger's work but also of the entire tradition of Austrian economics. T.he tenets of Aristotelianism referred to above 1 Barry Sm itli are first and foremost tenets of ontology: they tell us what the world is like and how its various parts and moments are related to each other. The question of apriorism, on the other hand, is skew to all such onto logical concerns. It relates exclusively to the sort of account one gives of the conditions under which knowledge is acquired. INSIDE Subjective Value T heory: A Reformulation by Alexander Tabarrok .................................................... 5 Rci11vcnti11g Socialism in Europe by Christoplier Lingle .................................................... 9 Robert Heilbroner Concedes "Mises was Right!" ....................................................... 10 Dofflemyer Lecture Series at Stanford ..................... 10 Conference Reports: Legacy of Adam Smith ................................................. 11 1990 "Mjses University" ............................................... 12 Book Bites ..................................................................... 14 All defenders of apriorism share the assumption that we are capable of acquiring knowledge of a special sort, called "a priori knowledge" via non-inductive means. They differ, however, in their accounts of where such knowledge comes from. Two broad families of apriorist views can be distinguished in this regard. On the one hand are what might be called impositionist views, which hold that a priori knowledge is possible as a result of the fact that the content of such knowledge reflects merely certain forms or structures that have been imposed or inscribed upon the world by the knowing subject. Knowledge, on such views, is never directly of reality itself; rather, it reflects the "logical structures of the mind," and penetrates to reality only as formed, shaped or modeJJed by a mind or theory. On the other hand are reflectionist views, which hold that we can have a priori knowledge of what exists, independently of al l impositions or inscriptions of the mind, as a result of the fact that certain strnctures in the world enjoy some degree of intelligibi li ty in their own right. The knowing subject and the objects of knowledge are for the reflectionist in some sense and to some degree pre-tuned to each other. And directly a priori knowledge of reality itself is therefore possible, at least at some level of generality, much along the lines in which we recognize the validity of a proof in logic or geometry. The impositionist view, of course, finds its classica 1 expression in the work of Kant, and I would argue t.hat great methodological confusion in the ranks of Austrian economics has arisen as a result of the pervasive assumption that all talk of the a priori must of necessity imply an impositionist or Kantian framework. For the apriorism lying in the background of Menge(s think ing is quite clearly reflectionist. Menger believes that there are a priori Contdbutors to this Issue Chris topher Lingle Is associate professor of economics at Miami University Dollbols European Center a.nd adjunct professor of economics al Centre Unlversltalre de l.uxembourj;\. He Is on leave as senior lecturer In economics from the University of Natal. Durban, South Africa. Barry Smith Is professor of philosophy al the lnternaUonal Academy of Philosophy In Lhe Principality of l.lechtensteln . He has recently been appointed lo succeed John Hospers as edllor of The Monist (the second oldest American philosophy perlodlcal and the lhird oldest philosophy periodical In the English language). Alexander Tabarrok Is a graduate student In economics al George Mason University. a Mises fellow, and a correspondent or the AEN. 2 categories ("essences" or "natures") in reality and that a priori propositions refJect structures or connections among such essences existing autonomously in the sense that they are not the result of any shaping or forming of reality on the part of the experiencing subject. The impositionist, in contrast, insists that a priori categories must be creatures of the mind, that they must be the result of some "imposition of form" upon the world. The imposition ist may therefore hold that the issue as to which sorts of econonilc structures Austrian economics embraces what might be called an Aristotelian methodologi;. exist is a matter for more or less arbitrary legislation by the economic theorist, or a matter of the "conceptual spectacles" of the economic agent. No grain of this idea is to be found in Menger. My claim, now, is that the Austrian economist of whatever hue works against the background of an assumption to the effect that the universals of economic reality are not created or imposed in any sense, but are discovered through our theoretical efforts. Economists do not study concepts or otber creatures of the mind. Rather, they study the qualitative natures of and the relations between such categories as value, rent, profit, the division of labor, money, etc. As Menger puts it in a well-known passage: Theoretical economics has the lask of investigating the general essence and the general connection of economic phenomena, not of analyzing economic concepts and of drawing Lbe conclusions resulting from this analysis. The phenomena , or certain aspects of them, and not their linguistic image, the concepts, are the object of theoretical research j n the field of economy. (1883, p . 64n; Eng. p. 37n) There is, however, one reason why an impositionist or Kantian reading of the propositions of Austrian economics has seemed so tempting to so many. This turns on the fact that Menger lays stress both on the subjectivism and on the methodological individualism of economics. Indeed, the status of economics as a theoretical science can be said to rest, in his eyes, on the acceptance of the two theses of subjectivism and methodological individualism. For subjectivism implies that an economy is not an autonomous formation with unintelligible properties of its own. Rather one can understand the workings of an economy by coming to an understanding of how the value of goods at earlier stages in the process of production is derived from the value to actual consumers of the products of the later stages. Moreover, one can see why this same understanding must apply ceteris paribus to every economy in whatever time or place. And methodological individualism implies that the whole of economics can in principle admit of an understanding of thi s sort, that there are no economic structures that cannot be grasped at least in principle in the thought experiments of the economist. None of the above, however, implies that the economist's understanding might flow from the fact that the propositions of economics reflect structures that have been imposed upon the worldin Kantian fashion-by either the economic theorist or the economic agent. That is, the intelligibility of basic economic structures does not imply ontological dependence of such structures on the mind, along the lines suggested by the impositionist. Rather, Menger's view implies precisely that economic reality is such as to manifest intelligible structures in and of itself. It is because economic reality is built up in intelligible ways out of structures involving human thought and action that we are able, by appropriate efforts, to read off these structures in and of themselves. II We know now that there is an Aristotelian alternative to the Kantian form of apriorism. Mises, however, seems to see his methodology primarily in terms reflecting Kantian doctrines . Indeed the Aristotelian alternative seems not to have been explicitly recognized as such by Mises at all, though this is hardly surprising, given that the special nature of Austrian Aristotelian apriorism was appreciated by very few at the time when Mises was working out the philosophical foundations of his praxeology.2 Common to all aprioristic doctrines, as we said, is a view to the effect that there are laws or propositions which are intelligible (capable of being grasped by non-inductive means). Kantian impositionism is the view that such a priori laws or propositions reflect categorical impositions of the mind. As a result of the influence of the logical positivism of the Vienna circle, now, recent Kantian varieties of apriorism have tended to take the extreme form which sees such categorical impositions as effected always via logic or language. More specifically, a priori propositions are seen as being characterized by the fact that they can in every case be exposed-via a process of stripping out defined terms and replacing them with definiens consisting of more primitive expressions-as mere tautologies or analytic truths, entirely empty of content. "All bachelors are unmarried" is revealed as analytic in this way by being converted into a truth to the effect that "All unmarried men are unmarried," which is an instance of the logical law "All A's which are Bare B." 3 Mises qua methodologist was very clearly tempted by the idea that the laws of praxeology shou ld be analytic in this sense. The theoretical part of economics would then be a purely formal or analytic discipline whose prindples would flow from the logical analysis of certain concepts. Thus praxeology, we are told, is like logic and mathematics in the sense that its content is a matter of empty tautologies: "Aprioristic reasoning is purely conceptual and deductive. It cannot produce anything else but tautologies and analytic judgments." Thus for example: "In the concept of money all the theorems of monetary theory are already impHed" (Mises 1966, p. 38). Thus while impositionism is not explicitly defended by Mises qua methodologist, he does insist on the analytic character of a priori propositions. The methodology which results is thereby rendered inconsistent with a reflectionist apriorism, since it implies that such propositions are empty of content, and clearly propositions that are empty of content are unable to picture anything (intelligible) on the side of the objects of the corresponding theory. Economics as a theoretical science rests on two theses: subjectivism and methodological individualism. • If we wish to hold on to the view that all the propositions of praxeology are analytic _in this sense, however, then we shall have to insist that the whole of praxeol ogy can be erected on the basis of premises involving at most one single primitive non-logical concept. For suppose that there were two such concepts, neither definable in terms of the other. Consider, now, the propositions expressing the non-trivial relations between these concepts. These cannot, ex hypothesi, be analytic, for there are now no defined non-logical terms which could be eliminated in such a way as to reveal the corresponding statements as truths oflogic, and no truth oflogic contains a plurality of non-logical terms in other than trivial ways. But nor, from the Misesian point of view, can they be merely factual (synthetic a posteriori). On the positivist reading of the Kantian aprioristic doctrine, however, no third alternative is available, which implies that the original assumption that there are two (or more) such concepts must be rejected.3 This helps to make intelligible the repeated insistence of Mises and his followers and critics that there is but one single non-logical concept (or "category" or "essence") of the praxeological discipline, the concept human action: The scope of praxeology is t he explication of t.he category of human action. All t.hat is needed for the deduct.ion of all praxeological theorems is knowledge of lhe essence of human action ... The only way to a cognition of these theorem s is logical analysis of our inherent. knowledge of the category of actio n .... Like logic and mathematics, praxeological knowledge is in us; it does not come from wit.hout.. (Mises 1966, p. 64) III When once we exami ne Mises's practice, however, then a quite different picture is presented. For we are forced to recognize that there is a veritable plenitude of non-logical primitive concepts at the root of praxeology. Indeed, Mises's descriptions of this plenitude in his actual practice in economics, and also in occasional passages in his methodological writ ings,4 can be seen to represent one of t he most sustained realizations of the Aristotelian idea as outlined by Menger. Action, we are told by Mises, involves apprehension of causal relations and of regularities in the phenomena. It presupposes being in a position to influence cau$al relations. It presupposes felt uneasiness. It involves the exercise of reason. It is a striving lo substitute a more satisfactory for a less satisfactory state of affairs. Acting man transfers the valuation of ends he aims at to the means he anticipates utilizing. Action tahes time, which like other scarce factors must be economized. Action presupposes choosing between various opportunities offered for choice. . Action involves the expectation that purposeful behavior has the power to remove or at least alleviate uneasiness. Thus it presupposes the uncertainty of the future. It involves meanings which the acting parties attribute to the situation. A thfog becomes a means only when reason plans to employ it for the attainment of some end and action really employs it for this purpose. Certainly some of the concepts involved in the above may reasonably be counted as logical concepts; others may no less reasonab ly be conceived as being in troduced by definWons formulated in terms of other, more primitive concepts. Consider, however, the co ncepts causation, relative satisfactoriness, reason, uneasiness, valuation, anticipation, means, ends, utilization, time, scarcity, opportunity, choice, uncertainty, expectation, etc. The idea that one could simultaneous ly and without circularity reduce every one of the concepts in this family to the single concept of action, that they could all be defined by purely logical means in terms of this one single concept, is ~eci- sively to be rejected. IV Hans-Hermann Hoppe's Praxeology and Economic Science (1988) is an interes ting defense of a 4 purportedly Kantian reading of Mises which seeks to break through the opposition between impositionism and reflectionism set out above by acknowledging the extent to which "the gulf between the mental and the real, outside, physical world is bridged" t hrough actions. In his treatment of Mises's "axiom of action" Hoppe writes: This axiom, the proposition that humans act., fulfills the requirement precisely for a t rue synthetic a priori proposition. It. cannot be denied that t.his proposition is true, since t.he denial would have to be categorized as an actionand so the truth of the statement literally cannot be undone. And the axiom is aJso not. derived from observation-there are only bodily movements to be observed but no such things as actionsbut stems instead from re flective understa nding. (pp. 19-20) There is much in this with which one can concur, though it has to be noted that a denial of the axiom of action need not in every case be self-refuting: the axiom might, for example, be denied by an extra-terrestrial being. Moreover there would seem to be many proposit ions classicaUy accepted as synthetic and a priori which could not be admitted as such on Hoppe's criterion that Praxeology is like logic and mathematics in the sense that its content is a matter of empty tautologies . their truth "literally cannot be undone" because their denial would, in light of the fact that a denial is itself an action, be self-refuting. Consider, for example, the propositions "nothing can be red and green all over," "orange is darker than red," "a promise gives rise to mut ually correlated claim and obligation," "given any three distinct tones, one lies intermediate between the other two." The most worrying feature of Hoppe's account is indeed that m*any of the most central propositions of praxeology itself will fall outside the scope of the synthetic a priori as he conceives it. "All the categories-values, ends, means, choice, preference, cost, profit and loss, as well as time and causality-are," he tells us, "implied in the axiom of action" (p. 21) But how is this "implied" to be understood? As Hoppe correctly recognizes, it is not a matter of logical implication. Rather, he seems to argue, it is to be understood as follows: that any denial of a proposition for example relating preference to cost must be self-refuting. Let us suppose that this is true. Do we know that it is true because of what we know about the special action of denial, as Hoppe seems to suggest? 'll(_ota6fe and Quota6[e Re: the interaction and collaboration of economists and physicists at the Santa Fe lnstitute. "The physical scientists were flabbergasted to discover how mathematically rigorous theoretical economists are. Physics is generally considered to be the most mathematical of all the sciences, but modem economics has it beat. Palmer, a condensed matter physicist, says economists use much more 'fancy mathematics' and hard-to-understand notations than physicists .... The flip side of the physicists' surprise at the rigor of the economists was the economists' astonishment at the physicists' lack thereof." "Strange Bedfellows,'' Science (August18, 1989): 700-03. Quoted from the journal of Eco110111ic Perspectives (Spring 1990). Or do we know that it is true because of what we know about preference and cost? Surely at least in part because of the latter; but then the appeal to actions of denial in the explication of a priori economic knowledge is at best insufficient, and at worst redundant. How much better it would be to accept that we are dealing here with a family of a priori categories and categorical structures which would be synthetic in the sense of the (Aristotelian) reflectionist doctrine set forth above. 1Cf. Carl Menger (1871, p. 3; Eng. p. 52, section 1 "On the Essence of Goods"). The discussion of such de re necessitation relations in Smith (1982). 2Here the work of the phenomenologist Adolf Reinach is especially important. For Reinach, who achieved for legal science what Menger and his school have achieved in the field of economics, was explicitly aware of the non-Kantian nature of his aprioristic views. See Reinach (1913), Smith (1982), and chapter 2 of Scheler (1973), a work in part inspired by the ontological theory of the a priori defended by Reinach . The phenomenological innuence is present also in the work of Felix Kaufmann, whose relations to Mises and his circle are interestingly discussed in Zillian (1990). 31 have developed this argument at greater length in "Austrian Economics and Austrian Philosophy" (1986). 4 Consider for example Mises (1981, p. 24). Refe1*ences Grassl, Wolfgang, and Barry Smith, eds. 1986. Austrian Economics: Historical and Philosophical Background. London and Sydney: Croom Helm. Hoppe, Hans*Hermann. 1988. Praxeology and Economic Science. Auburn, Ala.: The Mises Institute. Menger, Carl 1871. Grundsatze der Volllswirtschaftslehre. Vienna: Braumiiller. Trans. by James Dingwall and Bert F. Hoselitz as Principles of Economics. New York and London: New York Unjversity Press, 1981. -- . 1883. Untersuchungen uber die Methode der Socialwissenschaften, und der Politischen Okonomie ins-besondere. Leipzig: Duncker & Humblot. Trans. by Francis J. Nock as lnvestigations into the Method of the Social Sciences with Special Reference to Economics. New York and London: New York University Press, 1985. Mises, Ludwig von. 1966. Human Action. 3rd rev. ed. Chicago: Henry Regnery. 5 -- . 1981. Epistemological Problems of Economics. New York and London: New York University Press. Reinach, Adolf. [1911) 1913. "Die apriorischen Grundlagen des biirgerlichen Rechts". Jahrbuch fur Philosophie und phiinomenologische Forschung 1: 685-847. Repr. in Adolf Reinach 1990. Eng. trans. in Aletheia 3 (1983): 1-142. -- . 1990. Samtliche Werke. K. Schuhmann and Barry Smith, eds. Munich and Vienna: Philosophia. Scheler, M. 1973. Formalism in Ethics and Non-Formal Ethics of Value. Trans. by M. S. Frings and R. L . Funk. Evanston: Northwestern University Press. Smith, Barry. 1982. Introduction to Adolf Reinach, "On the Theory of the Negatjve Judgment." In Parts and Moments: Studies in Logic and Formal Ontology , Barry Smith, ed. Pp. 289-313. -- . 1986. "Austrian Economics and Austrian Philosophy". In Austrian Economics: Historical and Philosophical Background, Wolfgang Grassl and Barry Smith, eds. Pp. 1-36. -- . 1990. "On the Austrianness of Austrian Economics." Critical Review 4 (forthcoming). Smith, B., ed. 1982. Parts and Moments: Studies in Logic and Formal Ontology. Munich: Philosophia. Zillian, H.G. 1990. Klarheit und Methode. Felix Kaufmanns Wis1;enschaftstheorie (Studien zur Osterreichischen Philos-ophie, vol. 16). Amsterdam: Rodopi. • Subjective Value Theory: A Reformulation by Alex ander Tabarrok T he method of Austrian economics stresses the use of words and concepts rather than mathematics, but, unlike mathematics, words and concepts change their meaning through time. That f '(x) < 0 implies a negatively sloping curve was as clear to Newton as it is to a modern mathematical economist. The meaning Carl Menger ascribed to the term utility, however, differed from that of Mises. Furthermore, the meaning of words in one context can infuse and distort the meaning in another context. This is why, as Austrian economists, we must occasionally "clean house," re-examine our concepts, and clarify any that have become distorted. This is particularly true in regard to subjective value theory. The concept of subjective value is a tool used to explain the formation of prices and to clarify welfare theory. Unfortunately, it has become distorted because of four errors: (1) the theory has been confused with psychological concepts such as happiness; (2) it has been extended to areas where it has no relevance such as ethics; (3) there has been a To deny that we can recognize happiness and misery in our fellow human beings is to deny the basis of economics.