Do you believe that neoclassical economics is still around, and that it still has an ardent fan base? One thing I discovered at Walsh College is that students hate economics because of neoclassical mathematical economics that treat all humans as brainless automatons. Then they are exposed to Austrian economics, and they say, "I really like this because I can understand it." YeeHa! God bless logic.

Now this:

q=f(p) and dq/dp = f’ (p) < or = to -0-. (quantitative)

The higher the price of a good, the lower the demand. (praxeological)

They both say the same thing, with the first being a convoluted mathematical statement just begging for a graph, and the second one being an economic law.

The methodology of Austrian economics is fundamentally different from that which has been developed by divergent schools of economic thought. Other schools, such as the neoclassicals, either don’t concern themselves with methodology, or, they tend toward endorsement of a positivist or empirically-driven methodological means to support economic theorems.

The Austrians are set apart from the others in that they embrace praxeology, or the science of human action, as a conceptual root of economics. Praxeology was first used, as a term, by Alfred Espinas in his 1890 Revue Philisophique. However, the expression nowadays is mainly identified with Austrian economist Ludwig von Mises, and especially his groundbreaking tome Human Action.

Mises denied that observation was necessary in order to deduce economic law and/or truths, and thought human actors to be far too complex to be reduced to automatons whose behavior could be explained via mathematical equations. He thought “economics to be the science of human action,” and thus says of this science:

Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification and falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts. They are a necessary requirement of any intellectual grasp of historical events.

Human action is defined as purposeful behavior. It is purposeful because it “can be meaningfully interpreted by other men, for it is governed by a certain purpose that the actor has in view.” This is differentiated from movements that are purely reflexive or unconscious, “such as coughing when exposed to tear gas.” The fact that human beings consciously act sets forth the structure of logical implications for praxeological economics.

Mises’s method was controversial in that he denied the necessity of the extrapolation of data as a means of explaining how human actors sought various means to defined ends. Observation, he thought, would affect human behavior and therefore distort the meaning of historical data. Instead, the axiom of human action recognizes the fact that men acting by virtue of their being human is indisputable and incontrovertible.

On characterizing praxeology, Mises was not concerned with the ethical or moral implications of chosen means, but rather, he centered on the human person as an acting individual adopting certain means that he deems will help him to arrive at defined ends. Consequently, praxeological laws are considered to be value-free, totally independent of judgments of right or wrong, good or bad, as well as free of theoretical biases.

Praxeological law also makes the distinction between means – such as goods and services – and general conditions of human welfare – such as air – which are not the subject of human action. In essence, it is held that acting man must have a source of dissatisfaction from which he acts in order to alleviate his current state. Thus, an unknown future necessitates action. “If the means are in unlimited abundance, then they need not serve as the object of attention of any human action.”

What about the role of time in employing means to chosen ends? How does that affect the science of human action? Undeniably, all choices and actions take place in time. All actions are aimed at satisfying some end in the future. All action is aimed toward producing a future result, yet actors possess time preference: preferring to be satisfied now as opposed to in the future. Since time is scarce, an individual can only choose to satisfy so many ends, while others remain unsatisfied. Thus, this scarcity involves economizing on the part of the actor as he continues to take action to fulfill as many ends as possible.

Contrast this with quantitative economics wherein empiricism “violates the facts of history by attempting to reduce them to quantitative laws.” Mises thought it a fallacy that the social science of economics could be based on the “empirical discovery of quantitative constants” as is the case with the physical sciences. Thus he rejected all forms of econometrics to explain human behavior, norms, and human history. To Mises:

There are, in the field of economics, no constant relations, and consequently no measurement is possible. If a statistician determines that a rise of 10 percent in the supply of potatoes in Atlantis at a definite time was followed by a fall of 8 percent in the price, he does not establish anything about what happened or may happen with a change in the supply of potatoes in another country or in another time. He has not “measured” the “elasticity of demand” of potatoes. He has established a unique historical fact. The impracticability of measurement is not due to the lack of technical methods for the establishment of measure. It is due to the absence of constant relations.

Further, Mises explains:

In the mathematical treatment of physics the distinction between constants and variables makes sense; it is essential in every instance of technological computation……In economics there are no constant relations between various magnitudes......The truth is that there are only variables and no constants.

Thus “Mises proposes the term “praxeology” for the branch of knowledge exemplified by economics.” Economics is therefore an “a priori science, a science whose propositions can be given a rigorous logical justification, which distinguishes Austrians, or more precisely Misesians, from all other current economic schools.”

For instance, consider some economic propositions whose validity can be established through the logic of action as opposed to the type of observation used in the physical sciences. According to Austrian economist and theorist Hans-Herman Hoppe, the act of voluntary exchange denotes that economic actors place a certain value and preference on items to the exchange, and “expect to profit and have reverse preference orders,” that is, when we consider what the nature of exchange is. In a similar vein, Hoppe confirms the praxeological validation of the law of marginal utility when he states:

That the marginal utility of additional units of supply of homogenous units must fall follows from the incontestable statement that every acting person always prefers what satisfies him more over what satisfies him less. It is simply absurd to think that continuous testing would be required to establish such a proposition.

In addition to the Austrians, there has been a succession of classical economists who have illustrated praxeological foundations for analyzing the political economy, among the most notable of those being Jean-Baptiste Say, Nassau Senior, and Lionel Robbins. Say wrote, in his Treatise on Political Economy, “political economy…whenever the principles which constitute its basis are the rigorous deductions of undeniable general facts, rests upon an immovable foundation.”

Consequently, this foundation of economic theory known as praxeology establishes the Austrian school firmly outside of the mainstream neoclassicals, who operate on unrealistic assumptions and “as-if” scenarios in order to explain the actions of individual agents in the economy. Humans, according to the Misesians, are not pre-programmed to tumble into a general equilibrium mode as part of some abstract model, but instead, they are purposely deliberating individuals, faced with myriad choices to alleviate uncertainty through various courses of action. Thus is praxeology the reflection about the essence of action.

Sources of citations:

* Hoppe, Hans-Herman. “Economic Science and the Austrian Method, Part I.” The Mises Institute. http://www.mises.org/esandtam/pes1.asp

* von Mises, Ludwig. Human Action. Chicago: Henry Regnery, 1966.

* Rothbard, Murray. Man, Economy, and State. Auburn, AL: Ludwig von Mises Institute, 2004.

* Murphy, Robert P. “A Study Guide to Murray Rothbard’s Man, Economy, and State, with Power and Market.” The Mises Institute. http://www.mises.org/rothbard/mes/guidechap1.asp

* Rothbard, Murray. The Logic of Action One: Method, Money, and the Austrian School. Cheltenham, UK: Edward Elgar, 1997.