Human action, axiom and engine of economic theory

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The genius of Mises was to perceive in the geometric method opportunities for the development of the social sciences. Second part of our trilogy on the Austrian School of Economics.

In Human Action , Ludwig von Mises' ambition is to elevate economics to the status of science in the same way as the so-called hard sciences, that is to say to arrive at objective knowledge of the laws which govern economic phenomena. The genius of Mises was to perceive in the geometric method opportunities for the development of the social sciences.

What distinguishes the social sciences (or sciences of human action) from all the others is that Man is his own object of study. This is a huge advantage — imagine for example the implications in physics if matter could speak .

Thus, for Mises, “we have to think about ourselves and think about the structure of human action. As with logic and mathematics, praxeological knowledge is in us; it does not come from outside. " 

This inner search begins with the definition of the concept of action:

Human action is intentional behavior. We can also say: acting is will implemented and transformed into a process; it is tender for ends and objectives; it is the ego's reasoned response to stimuli and conditions in its environment; it is a person's conscious adjustment to the state of the universe that determines his life. 

We will stop there for paraphrases because, as Mises points out, “the very definition is adequate and needs neither complement nor comment. "

Here then is the starting axiom on which the whole Austrian theory will be based.

It is essential to underline that this axiom could not have been drawn from observation, since the only thing we can observe are “moving bodies” , and not strictly speaking actions. The observation of a behavior does not therefore make it possible to make the concept of action understandable to the human mind , for the simple reason that “action is a category that the natural sciences do not take into account” 

Mises refers here to the dualism between matter and spirit: the idea that thought is a world apart, isolated from the physical world, that “the procedures of the natural sciences are not able to observe and describe ” . Neuroscience can certainly seek to explain how consciousness is formed in the brain, but only conscious beings are able to understand consciousness as a concept since, by definition, they experience it on a daily basis.

In other words, the raw facts, taken as such, have no intrinsic meaning. It is by introducing an analytical judgment that we give them meaning. Theory is therefore this tool developed by thought that makes the outside world intelligible. 

It is common to think, and even more so in the era of Big Data, that economics could “reconnect with reality” by simply observing it.

First, there are biases in the methods of observation themselves. But once again, the stake is less to observe reality than to understand it, to explain it. By freeing itself from theories, science deprives itself of an explanatory framework to interpret the phenomena it seeks to understand.

As Pascal Salin pointed out, “it is absurd to oppose theory and reality: theory is the best way to grasp reality and those who claim to be realistic, pragmatic and concrete are only people who refuse to think . " 

Even in physical science, as Albert Einstein recognized, “concepts are creations of the mind, and they are not, despite appearances, solely determined by the outside world. " 

Now let's come back to our main subject. It would be legitimate to ask how a concept as simple and obvious as action can lead to a deep knowledge of economic phenomena. Austrian economists are often criticized for stating only tautologies. Mises will not deny it.

He asserted, moreover, that “aprioristic reasoning is purely conceptual and deductive. It can produce nothing other than tautologies and analytical judgments. "  And yet, this reasoning does indeed allow access to new knowledge, or more precisely, " to make manifest and obvious what was hidden and unknown before " 

Mises draws a parallel with geometric theories:

All geometric theorems are already involved in axioms. The concept of a right triangle already involves the Pythagorean theorem. This theorem is a tautology, its deduction leads to an analytical judgment. However, no one would argue that geometry in general and the Pythagorean theorem in particular do not expand our knowledge at all. Knowledge drawn from purely deductive reasoning is also creative, and opens up to our minds hitherto unapproachable spheres. The signifying function of aprioristic reasoning is, on the one hand, to highlight all that is implied in the categories, concepts and premises; on the other hand, to show what is not involved.

It is therefore thanks to this method that the Austrians managed to describe the mechanism which results in the formation of prices, to demonstrate the non-neutral character of money, or to underline the benefits of free trade 11 - to mention just a few examples. 

Because they do not see the point of subjecting their theories to the test of facts, Austrian economists are often accused of dogmatism. But this type of accusation testifies to a lack of knowledge of the subject. It is true that the theories developed by Austrian economists are by nature not falsifiable. But it is precisely because these propositions cannot be falsified that the methodology which makes it possible to arrive at them is so essential: science has no other means of accessing these truths.

As Spinoza puts it in The Ethics :

The truth would have remained hidden from men for eternity if mathematics, which does not deal with ends, but only with the essence and the property of figures, had not taught men other rules of truth.

Finally, it is advisable to raise a last misunderstanding: it is not because these theories are not falsifiable in the sense of Popper that they cannot be tested. But they are tested differently: by being subjected to a scrupulous examination of the reasoning behind them. This means that the conclusions that the Austrians reach are neither sacred nor definitive.

Mises also wished to emphasize this point:

Omniscience is denied to man. The most refined theory, which seems to completely satisfy our thirst for knowledge, may one day be amended or supplanted by a new theory. Science does not give us absolute and definitive certainty. It gives us assurance only within the limits of our mental capacities and the existing state of scientific thought. A scientific system is simply a stage reached in the indefinitely continued search for knowledge. He is necessarily affected by the imperfection inherent in all human effort. But acknowledging these facts does not mean that the economics of our time is backward. It only means that it is a living thing, and to live involves both imperfection and change.

Further on, he writes:

Man is not infallible. He seeks the truth, that is to say the most adequate understanding of reality, as far as the structure of his mind and reason make it accessible to him. Man can never become omniscient. He can never be absolutely sure that his research has not gone astray, and that what he considers certain truth is not a mistake. All man can do is submit his theories, again and again, to the most rigorous critical re-examination. This means, for the economist, to link upstream all the theorems to their incontestable, certain and ultimate basis, the category of human action; and to test with the most careful attention all the hypotheses and deductions which lead from this base to the theorem examined. It cannot be said that this procedure guarantees against error. But it is undoubtedly the most effective method of avoiding error.

Austrian theories are therefore not immutable dogmas. They are only judged on the basis of their internal consistency and explanatory power and not on their ability to be falsified. While Austrians recognize the existence of eternal truths, they are also aware of the difficulty of accessing them.

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