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I.
How do we know about the outer world — or reality,
for that matter? Where does our knowledge about it come from? The
attempt to answer these questions leads to epistemology, the
branch of philosophy dealing with the origin, scope, and validity of human
knowledge.
In the epistemological debate, there are two archetypal and actually
diametrically opposed concepts: empiricism and rationalism.
Empiricism claims that sensory experience (observation) is man's main (or
even sole) source of knowledge, while rationalism claims that his knowledge
stems from human reason.
Hardly anyone would deny that there is knowledge that comes to us from
sensory experience. Take, for instance, the knowledge that water freezes at
zero degrees Celsius. It actually takes observation(s) to acquire such
knowledge.
However, in the field of science, which formulates knowledge that
applies universally, irrespective of time and place, rationalism holds that
empirical knowledge gained through sensory experience doesn't have the same
validity as knowledge deduced from reasoning.
Take, for instance, the following two observations:
1.
In the last
decades, the fiat-money
supply rose 200 percent year to year, while real GDP increased 50 percent
year to year.
2.
In the last
decades, government tax revenues rose from 10 percent to 50 percent of GDP,
while per capita income increased 40 percent.
How can we make sense of these findings? Did real GDP increase because
of a rise in the fiat-money supply, or did real GDP go up despite a
rise in the fiat-money supply? Likewise, one can ask, Did real GDP increase
because or despite a rise in taxes?
Each of these explanations appears equally plausible. So which is the
correct one? The first step towards answering this question is the understanding
that employing a theory
(an idea of putting together in a systematic fashion the knowledge one has of
aspects of reality) is indispensible for observing "facts."
II.
Indeed, there is no "presuppositionless
observation of 'facts,'"[1]
as Ludwig von Mises (1881–1973) pointed out:
There is no such thing as a mere recording of unadulterated facts apart
from any reference to theories. As soon as two events are recorded together
or integrated into a class of events, a theory is operative.[2]
The notion of "letting the facts speak for themselves" without
taking recourse to a theory is nonsensical.[3]
Mises was aware that people's "reasoning may
be faulty and the theory incorrect; but thinking and theorizing are not
lacking in any action."[4]
How do we know, and how can we make sure, that we employ a correct
theory? Fortunately,
in social science a satisfactory answer can be given to these questions by
taking recourse to a priori
theory — meaning propositions that provide true knowledge about
reality, and whose truth value can be validated independent of experience.
To explain, we have to turn briefly to the Prussian philosopher Immanuel Kant (1724–1804)
and his groundbreaking The
Critique of Pure Reason (1781). A central outcome of what Kant called
transcendental investigation is his discovery of so-called a priori synthetic
judgments.[5]
A priori denotes a
proposition (a declarative statement) expressing knowledge that is acquired
prior to, or independently from, experience. In contrast, a posteriori
denotes knowledge that is acquired through and on the basis of experience.
A synthetic judgment refers to knowledge that is not contained in
the subject matter. An example is All bodies are heavy. Here, the
predicate "heavy" conveys knowledge that goes beyond the mere
concept of body in general. A synthetic judgment thus yields
new knowledge about the subject matter.
Analytical judgments repeat what
the concept of the subject matter already presupposes. An example is All
bodies are extended. In order to know that bodies are
extended one does not need experience, as this information is already in the
concept of bodies.
One would expect that analytical judgments are a priori,
while synthetic judgments are a posteriori. However, Kant
claims that there exist a priori synthetic judgments — knowledge
that neither merely repeats the meaning of the concept under review nor
requires experience to say something new about the subject matter.
How can a priori synthetic judgments be identified? According to
Kant, a proposition must meet two requirements in order to qualify as an a
priori synthetic judgment. First, it must not result from experience,
but from reasoning. Second, it cannot be denied without causing an
intellectual contradiction.
III.
Mises realized that the axiom of human action is an a priori synthetic
judgment. The axiom of human action says that humans act. This might
sound trivial at first glance. At second glance, however, it becomes obvious
that the axiom of human action has far-reaching implications.[6]
The axiom of action meets the requirements of an a priori synthetic
judgment. First, one cannot observe that humans act in the first place. For
doing so, one needs an understanding of what human action is. This knowledge cannot
be acquired through experience, because it comes from reason and not from
experience.
Second, one cannot deny that humans act, for doing so would result in an
intellectual contradiction. Saying "humans cannot act" is itself a
form of human action, and it would thus contradict the statement's truth
claim.
Mises also realized that, by using formal logic, other truth claims can
be deduced from the irrefutably true axiom of human action. This approach he
termed praxeology: the logic of human action. Mises reconstructed economics on the basis of praxeology.
Praxeology is a priori theory. It yields propositions about reality
that are irrefutably true — propositions that can be validated without
taking recourse to experience. Take, for instance, the concept of causality —
the idea that each effect has a cause. It is logically implied in the
axiom of human action.
As Mises put it,
Acting requires and presupposes the category of causality. Only a man who
sees the world in the light of causality is fitted to act. In this sense we
may say that causality is a category of action. The category means and ends presupposes
the category cause and effect. In a world without causality and
regularity of phenomena there would be no field for human reasoning and human
action. Such a world would be a chaos in which man would be at a loss to find
any orientation and guidance. Man is not even capable of imagining the
conditions of such a chaotic universe. Where man does not see any causal
relation, he cannot act.[7]
A priori theory offers an approach for reviewing, criticizing, and
possibly revising commonly held theoretical explanations of historical
events.[8]
When (re)viewed from point of a priori theory, what can be said about the two
observations that were rolled out at the beginning of this article?
Re 1: From the
viewpoint of a priori theory, we can say with certainty that a rise in the
fiat money supply does not raise a society's standard of living. A
rise in the fiat money stock does not confer a social benefit, because
money's sole function is as the means of exchange.
Furthermore, a priori theory shows that fiat money exerts economically
detrimental effects on the economy. Fiat money is typically created through bank circulation
credit, thereby necessarily causing capital consumption and malinvestment.
The fiat-money injection lowers the market interest rate to below the natural
interest rate (as determined by societal time preference), thereby
enabling firms producing goods and services that do not correspond to the
market's true demand. It induces a boom, which must then result
in a bust.
The increase in production that comes with fiat-money expansion is
unsustainable and will be corrected sooner or later. Output gains from
fiat-money-induced activities may tend to show up earlier than the output
losses that come with it, giving the sensory impression that an increase in fiat
money can increase output. The truth is, however, that fiat-money creation
does not increase peoples' standard of living, but rather lowers it compared
to a situation in which there is no rise in the fiat-money supply.
Re 2: We can say
with certainty that imposing (higher and higher) taxes on income earners will
lower, rather than raise, peoples' standard of living. This is because
(higher) taxes (increasingly) divert scarce resources from homesteaders,
producers, and contractors to nonhomesteaders, nonproducers, and noncontractors.
This lowers the incomes of homesteaders, producers, and contractors, and
thus necessarily raises their respective time preference. As a result,
savings and investment will decline, and capital stock and real wages will
grow slower (or may even decline) compared with a situation where there is no
taxation.
IV.
A priori theory provides true knowledge about the outer world, and the
truth of knowledge derived from a priori theory can be validated independent
of sensory experience.
By no means less important, a priori knowledge trumps
empirical knowledge: "A proposition of an aprioristic theory can never
be refuted by experience."[9]
Praxeology, the a priori science of human action, and,
more specifically, its up to now best-developed
part, economics, provides in its field a consummate interpretation of past
events recorded and a consummate anticipation of the effects to be expected
from future actions of a definite kind.[10]
An a priori theorist can thus decide in advance (that is, without
engaging in social experimentation, or testing, for that matter)
whether or not a given action — policy measure — can bring about
the promised effects.
For instance, we know a priori that issuing fiat money does not
create economic prosperity, that tax- or debt-financed government spending
does not improve society's material well-being, and that these
measures are actually economically harmful.
A priori theory is an intellectually powerful defense against promises
made by false theory and its detrimental (even disastrous) economic
consequences if put into practice. Students of social sciences should
therefore be increasingly encouraged to engage in a priori theory.
Thorsten Polleit is Honorary Professor at the
Frankfurt School of Finance & Management. Send him mail. See Thorsten Polleit's article archives.
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Notes
[1] Mises, L. (2003), Epistemological Problems of
Economics, 3rd ed., "The Task and Scope of the Science of Human
Action," Ludwig von Mises Institute, Auburn,
US Alabama, p. 29.
[2] Mises, L. (1996), Human Action, 4th ed., Fox &
Wilkes, San Francisco, p. 647.
[3] See, for
instance, Cohen, M.R., Nagel, E. (2002 [1934]), An Introduction To Logic
And Scientific Method, Simon Publications Inc., Safety Harbor, Chapter
XI, esp. p. 199.
[4] Mises, L. (1996), Human Action, 4th ed., Fox &
Wilkes, San Francisco, p. 177.
[5] A highly
recommendable introduction is written by Marcus Weigelt
in his Introduction to Kant, I. (2007 [1781]), Critique of Pure Reason,
Penguin Books, pp. xv–lxix.
[6] See in this
context a "must read" is Hoppe, H.H. (2007 [1995]), Economic
Science and The Austrian Methodology, Ludwig von Mises
Institute, Auburn, US Alabama.
[7] Mises, Human Action, 4th ed., Fox & Wilkes,
San Francisco, p. 22.
[8] See, for
instance, Hoppe, H.H. (2006), Democracy, The God That Failed: The
Economics and Politics of Monarchy, Democracy, and Natural Order,
Transaction Publishers, New Brunswick (US) and London (UK), in particular his
Introduction, pp. xv–xix.
[9] Mises, L. (2003), Epistemological Problems of
Economics, 3rd ed., "The Task and Scope of the Science of Human
Action," Ludwig von Mises Institute, Auburn,
US Alabama, p. 30.
[10] Mises, L. (1985), Theory and History: An
Interpretation of Social and Economic Evolution, Ludwig von Mises Institute, Auburn, US Alabama, p. 309.
Thorsten Polleit
Thorsten Polleit is Honorary Professor at
the Frankfurt School of Finance & Management.
This essay was originally published in www.Mises.org. By authorization.
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