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I.
The saying that things may work
nicely in theory, but do not necessarily work in practice is well known.[1]
It is typically meant to disparage the importance of theory, suggesting it
would be too far removed from practical matters to help in solving the issue
at hand.
The Prussian philosopher Immanuel
Kant (1724–1804), in his 1793 essay "On the Popular Judgment:
'This May Be True in Theory, But It Does Not Apply in Practice,'"
responded to such criticism; in fact, he responded with his essay to
criticism leveled against his ethical theory by the philosopher
Christian Garve (1742–1798).
Therein, Kant made the point that
theory provides "principles of a fairly general nature," or general
rules. However, theory does not tell man how to apply it, says Kant. For
this, the act of judgment is required:
For a concept of the understanding,
which contains the general rule, must be supplemented by an act of judgment
whereby the practitioner distinguishes instances where the rule applies from
those where it does not.[2]
The Prussian philosopher effectively
called for respecting the role theory has for acting man:
No one can pretend to be
practically versed in a branch of knowledge and yet treat theory with scorn,
without exposing the fact that he is an ignoramus in his subject.[3]
In this methodological work Ludwig
von Mises (1881–1973) emphasized the
importance of theory for acting man at the most fundamental level, noting
that theory and human action are in fact inseparable. Mises
writes,
Action is preceded by thinking.
Thinking is to deliberate beforehand over future action and to reflect
afterwards upon past action. Thinking and acting are inseparable. Every
action is always based on a definite idea about causal relations. He who
thinks a causal relation thinks a theorem. Action without
thinking, practice without theory are unimaginable. The reasoning may
be faulty and the theory incorrect; but thinking and theorizing are not
lacking in any action. On the other hand thinking is always thinking of a
potential action. Even he who thinks of a pure theory assumes that the theory
is correct, i.e., that action complying with its content would result in an
effect to be expected from its teachings. It is of no relevance for logic
whether such action is feasible or not.
With theory being inseparable from
human action, the crucial question is this: What is the correct theory?
For obvious reason, acting man will be interested in correct theory: "No
matter how one looks at it, there is no way in which a false theory can serve
a man or a class or the whole of mankind better than a correct theory."[4]
II.
In today's mainstream economics the
truth value of a theory is typically tested along the lines of an
"if-then hypothesis." For instance, economists test whether a rise
in the money supply leads to higher prices, or whether a rise in the money
supply causes rising prices — or whether the reverse holds true.
Such a procedure is typical of
positivism-empiricism-falsificationism — a
methodological approach in economics that must not only be rejected as
intellectual confusion;[5]
it can also be criticized as being prone to demagogic abuse.
For if one holds the view that
nothing can be known (for sure) without testing it (which, by the way, is a
contradiction in itself, but this finding shall not be of no further concern
here), one must try it to find out.
Once a theory sounds good, or
benevolent, enough — such as the theory that a rise in the money supply
brings prosperity for all, or the theory that
government deficit spending creates new jobs — people will love to see
it put into practice.
What is more, under the reign of
positivism-empiricism-falsification there is even an economic incentive for
spreading theories just for the sake of their political efficacy — even
if these theories are false: those who provide credible scientific
legitimization to actions pursued by government can typically expect high
rewards.
To provide a metaphorical
illustration, to make robbery socially accepted, the robber will be willing
to share some of his loot with those helping to make his crime acceptable
from the viewpoint of his victims.
When it comes to
benevolent-sounding economic theories, consider the following examples:
·
The state is indispensable for peace and
prosperity; without the state, social chaos, relentless aggression, and
misery would result.[6]
·
Money production must be monopolized by
the state, for there is no other way to obtain reliable money.
·
Commodity money (gold and silver) is
better replaced by fiat money, as only fiat money allows for an adequate
increase in the money supply — which, in turn, is necessary for output
and employment growth.
·
Capitalism exploits the working class and
leads to widespread poverty, war, and imperialism; socialism will maintain
peace and raise the standards of living for all.
·
Democracy (majority voting) is the form
of political organization respecting individual freedom and property rights,
necessary for peaceful cooperation and prosperity.
These examples may suffice to make
the point: once theories are considered to be benevolent theories, they can
be expected to be put into action; the more benevolent the theory is, the
more likely social experimentation gets under way.
However, engaging in social
experimentation for alleged truth-finding purposes comes at a high price
— at times at a prohibitively high price, as the experimentation with
socialism in many countries has made all too clear.
III.
In the field of economics, however,
it is possible to decide whether or not theories are correct without having
to take recourse to experimenting and testing.
Mises reconstructed
the science of economics as the logic of human action, which he termed praxeology.
As a priori theory, praxeology allows deducing irrefutable — or
apodictic — truths from the irrefutably true axiom of human action.
In Mises's
words,
Praxeology is a theoretical and
systematic, not a historical, science. Its scope is human action as such,
irrespective of all environmental, accidental, and individual circumstances
of the concrete acts. Its cognition is purely formal and general without
reference to the material content and the particular features of the actual
case. It aims at knowledge valid for all instances in which the conditions
exactly correspond to those implied in its assumptions and inferences. 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 or falsification on the ground of experience and facts.
Praxeology provides a methodology
that allows separating correct economic theories from false economic theories
on a priori grounds — that is, without having to engage in social
experimentation.
In view of the illustrations given
above (without developing the argument at length), we know for sure that the
state is not the solution but the root cause of the most severe social
conflicts.
From praxeology we also know with
certainty that money is a free-market phenomenon; that commodity money, the
logical choice of free market action, is sound money; and that the state
monopolization of money production brings unsound money.
We also know for sure that an
increase in the money supply doesn't make an economy richer; it merely
benefits the early receivers of the new money (who are those issuing it) at
the expense of those receiving the new money late or not at all.
It can also be deduced from
praxeology that socialism leads to great misery, as it is a form of social
organization that cannot work; it is bound to fail, and capitalism is the
only economically viable form of societal organization.
Finally, it can be shown on the
basis of praxeology that democracy is actually — and this may be
surprising to the many — incompatible with preserving individual
freedom and property rights and thus peaceful cooperation and prosperity.
The power of unmasking and
demystifying false economic theories on a priori grounds, that is without
having to engage in social experimentation, is certainly one of the most
fascinating aspects of the Misesian-oriented
Austrian School of economics.
In his introduction to
Critique of
Pure Reason (1787), Kant title chapter 3, "Philosophy
stands in need of a Science which shall Determine the Possibility,
Principles, and Extent of Human Knowledge 'a priori.'" For the science
of economics, Mises has done just that.
Notes
[1] "The term theory is ordinarily
understood to signify that the suggested explanation is held to have been
satisfactorily proved, and to be no longer open to questions." Joyce, G.
H. (1908), Principles of Logic, Longmans, Green & Co, London et
al., p. 362.
[2] Kant, I. (1992 ), Über
den Gemeinspruch: Das mag in der Theorie richtig sein, taugt aber
nicht für die
Praxis, Zum ewigen Frieden, H. F. Klemme, ed.,
Felix Meiner Verlag
Hamburg, p. 3 [A 202], my translation.
[3] Ibid, p. 4 [276], own translation.
[4] Mises, L. v.
(1957), Theory &
History, p. 124.
[5] See in this context Hoppe, H. H. (2006),
Austrian Rationalism in the Age of the Decline of Positivism, in: The
Economics and Ethics of Private Property, Studies in Political Economy and
Philosophy, 2nd ed., Ludwig von Mises Institute,
Auburn, US Alabama, pp. 347–379.
[6] Murray Rothbard
defines the
state is defined as
that institution which possesses
one or both (almost always both) of the following properties: (1) it acquires
its income by the physical coercion known as "taxation"; and (2) it
asserts and usually obtains a coerced monopoly of the provision of defense
service (police and courts) over a given territorial area.
Rothbard gives a positive
definition of the state: Iit says what the state really
is, not what it ought to be (normative definition).
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