Epistemological Problems of Economics

1. Origin in the Historical and Normative Sciences

It is in accounts of history that we find the earliest beginnings of knowledge in the sciences of human action. An epistemology that is today rejected required of the historian that he approach his subject matter without theory and simply depict the past as it was. He has to describe and portray past reality, and, it was said, he will best succeed in doing this if he views events and the sources of information about them with the least possible amount of prejudice and presupposition.

Not until very late was it realized that the historian cannot duplicate or reproduce the past; on the contrary, he interprets and recasts it, and this requires that he make use of some ideas that he must have already had before setting about his work.1  Even if, in the course of his work, the treatment of his material leads him to new ideas, concepts are always logically prior to the understanding of the individual, the unique, and the non-repeatable. It is impossible to speak of war and peace unless one has a definite conception of war and peace before one turns to the historical sources. Nor can one speak of causes and effects in the individual case unless one possesses a theory that treats certain connections between cause and effect as having a universal range of applicability. The reason why we accept the sentence, “The king defeated the rebels and therefore remained in power,” but are not satisfied with the logically contradictory sentence, “The king defeated the rebels and therefore fell from power,” is that the first conforms to our theories about the results of military victory, while the latter contradicts them.

The study of history always presupposes a measure of universally valid knowledge. This knowledge, which constitutes the conceptual tool of the historian, may sometimes seem platitudinous to one who considers it only superficially. But closer examination will more often reveal that it is the necessary consequence of a system of thought that embraces all human action and all social phenomena. For example, in using an expression such as “land hunger,” “lack of land,” or the like, one makes implicit reference to a theory that, if consistently thought through to its conclusion, leads to the law of diminishing returns, or in more general terms, the law of returns. For if this law did not hold, the farmer who wanted to obtain a greater net yield would not require more land; by means of an increased expenditure of labor and capital goods he would be able to obtain from even the smallest piece of tillage the same result he wanted to achieve by increasing the amount of acreage at his disposal. The size of the area available for cultivation would then be a matter of indifference to him.

However, it is not only in history and in the other sciences that make use of the conceptual tools of historical investigation that we find universally valid statements about human action. Such knowledge also constitutes the foundation of the normative sciences?ethics, the philosophy of law, and systematic jurisprudence. The primary task of political philosophy, the philosophy of law, and political science is the attainment of universally valid knowledge of social phenomena. If they have failed in this endeavor, the reason is to be sought not only in the fact that they often strayed from their goal and aimed at others, and?like the philosophy of history?instead of seeking the universally valid in the vicissitudes of particular events, began to search for the objective meaning of things. The determining factor in their failure was that from the very outset they made use of a scientifically unfruitful method: they began not with the individual and his action, but with attempts to view the totality. What they wanted to discover was not the regularity prevailing in the action of men, but the whole course of mankind’s progression from its origin to the end of all things.

Psychology, in turning to the individual, found the right starting point. However, its path necessarily leads in another direction than that of the science of human action. The subject matter of the latter is action and what follows from action, whereas the subject matter of psychology is the psychic events that result in action. Economics begins at the point at which psychology leaves off.

2. Economics

The scattered and fragmentary insights of the historical and normative sciences themselves achieved scientific status only with the development of economics in the eighteenth century. When men realized that the phenomena of the market conform to laws, they began to develop catallactics and the theory of exchange, which constitutes the heart of economics. After the theory of the division of labor was elaborated, Ricardo’s law of association enabled men to grasp its nature and significance, and thereby the nature and significance of the formation of society.

The development of economics and rationalistic sociology from Cantillon and Hume to Bentham and Ricardo did more to transform human thinking than any other scientific theory before or since. Up to that time it had been believed that no bounds other than those drawn by the laws of nature circumscribed the path of acting man. It was not known that there is still something more that sets a limit to political power beyond which it cannot go. Now it was learned that in the social realm too there is something operative which power and force are unable to alter and to which they must adjust themselves if they hope to achieve success, in precisely the same way as they must take into account the laws of nature.

This realization had enormous significance for men’s action. It led to the program and policies of liberalism and thus unleashed human powers that, under capitalism, have transformed the world. Yet it was precisely the practical significance of the theories of the new science that was responsible for its undoing. Whoever wished to combat liberal economic policy was compelled to challenge the character of economics as a science. Enemies arose against it for political reasons.

The historian must never forget that the most momentous occurrence in the history of the last hundred years, the attack launched against the universally valid science of human action and its hitherto best developed branch, economics, was motivated from the very beginning not by scientific ideas, but by political considerations. However, the science of human action itself is not concerned with these political backgrounds, but with the arguments with which it has been confronted. For it has also been confronted with arguments and attacked by objective reasoning. Its nature remained problematical as long as no one succeeded in achieving clarity about the question what this science really is and what character its propositions have.

3. The Program of Sociology and the Quest for Historical Laws

Concurrently with the achievements that stemmed from the foundation of the science of human action came grandiloquent programmatic declarations that demanded a science of social phenomena. The discoveries made by Hume, Smith, Ricardo, Bentham, and many others may be regarded as constituting the historical beginning and foundation of a truly scientific knowledge of society. The term “sociology,” however, was coined by August Comte, who, for the rest, in no way contributed to social science. A great number of authors with him and after him called for a science of society, most of them without appreciating what had already been done toward founding it and without being able to specify how one would go about achieving it. Many lost themselves in empty trivialities, the most frightful example of which may be considered the attempt to conceive of society as a biological organism. Others concocted an ostensible science to justify their political schemes. Still others, for example Comte himself, added new constructions to the philosophy of history and called the result sociology.

These prophets of a new epoch, who professed to have developed for the first time a science of the social realm, not only failed in this domain, which they had declared to be the proper field of their activity, but unhesitatingly set out to destroy history and all the sciences that make use of the historical method. Prepossessed by the idea that Newtonian mechanics constitutes the model for all the genuine sciences, they demanded of history that it at last begin to raise itself to the status of an exact science through the construction of “historical laws.”

Windelband, Rickert, and their school opposed these demands and brought into clear relief the special and peculiar characteristics of historical investigation. Nevertheless, their arguments are weakened by their failure to conceive of the possibility of universally valid knowledge in the sphere of human action. In their view the domain of social science comprises only history and the historical method .2  They regarded the findings of economics and historical investigation in the same light as the Historical School. Thus, they remained bound to historicism. Moreover, they did not see that an intellectual outlook corresponding to the empiricism that they had attacked in the field of the sciences of human action often went hand in hand with historicism.

4. The Standpoint of Historicism

In the view of historicism the field of the science of human action is constituted only by history and the historical method. Historicism maintains that it is a waste of effort to search after universally valid regularities that would be independent of time, place, race, nationality, and culture. All that sociology and economics can tell us is the experience of a historical event, which can be invalidated by new experience. What was yesterday can be otherwise tomorrow. All scientific knowledge in the social realm is derived from experience; it is a generalization drawn from past experience that can always be upset by some later experience. Therefore, the only appropriate method of the social sciences is the specific understanding of the historically unique. There is no knowledge whose validity extends beyond a definite historical epoch or at most beyond several historical epochs.

It is impossible to think this view through consistently to its conclusion. If one attempts to do so, one must sooner or later reach a point at which one is forced to admit that there is something in our knowledge that comes before experience, something whose validity is independent of time and place. Even Sombart, who is today the most outspoken representative of the view that economics must make use of the method of understanding, is compelled to acknowledge that also in the “field of culture, and in particular of human society, there is such a thing as logically necessary relationships.” He believes that “they constitute what we call the mind’s conformity to law; and we call these principles, deduced a priori, laws.”3  Thus, unintentionally and unawares, Sombart has admitted all that is required to prove the necessity of a universally valid science of human action fundamentally different from the historical sciences of human action. If there are such principles and laws at all, then there must also be a science of them; and this science must be logically prior to every other treatment of these problems. It will not do simply to accept these principles as they are conceived in daily life. It is absurd to want to forbid science to enter a field and to demand tolerance for received misconceptions and unclear, contradictory ideas. Nor is Sombart able to offer anything more than a few sarcastic remarks in support of his disapproval of any attempt to treat economics as a universally valid theory. He thinks it is “occasionally very amusing to observe how an empty trifle lying concealed behind a great show of words makes its appearance in all its pitiful meagerness and almost arouses our scorn.”4  This is, of course, a quite inadequate attempt to defend the procedure adopted by Sombart and other supporters of historicism. If, as Sombart expressly admits, there are “fundamental economic concepts . . . that are universally valid for all economic action,”5  then science may not be prevented from concerning itself with them.

Sombart admits still more. He states explicitly that “all theory is ‘pure,’ that is, independent of time and space.”6  Thus he takes issue with Knies, who opposed the “absolutism of theory,” i.e., its “pretension to set forth propositions in the scientific treatment of political economy that are unconditional and equally valid for all times, countries, and nationalities.”7

Perhaps it will be objected that it is belaboring the obvious to insist that economics provides us with universally valid knowledge. Unfortunately, such a reproach would have no justification; in the eyes of many people it is not obvious. Whoever has undertaken to present the teachings of historicism in a coherent form has generally been unable to avoid revealing, at some point in the process, the impossibility of systematically developing the doctrine. However, the importance of historicism does not lie in the entirely abortive attempts that have been made to treat it as a coherent theory. Historicism by its very nature is not a system, but the rejection and denial in principle of the possibility of constructing a system. It exists and operates not within the structure of a complete system of thought, but in critical aperçus, in the propaganda of economic and socio-political programs, and between the lines of historical, descriptive, and statistical studies. The politics and the science of the last decades have been completely dominated by the views of historicism and empiricism. When it is recalled that an author who, during his lifetime, stood in the highest regard in the German-speaking countries as a theorist of “the economic aspects of political science,” explained the necessity to economize as a specific feature of production in a money economy,8  one will certainly appreciate the need of emphasizing the untenability of historicism before embarking upon the task of setting forth the logical character of the science of human action.

5. The Standpoint of Empiricism

It is indisputable that there is and must be an aprioristic theory of human action. And it is equally indisputable that human action can be the subject matter of historical investigation. The protest of the consistent representatives of historicism, who do not want to admit the possibility of a theory that would be independent of time and place, need disturb us no more than the contention of naturalism, which wants to challenge the scientific character of history so long as it has not reached the point where it can establish historical laws.

Naturalism presupposes that empirical laws could be derived a posteriori from the study of historical data. Sometimes it is assumed that these laws are valid without respect to time or place, sometimes that they have validity only for certain periods, countries, races, or nationalities.9  The overwhelming majority of historians reject both varieties of this doctrine. Indeed, it is generally rejected even by those who are in accord with historicism and who do not want to admit that, without the aid of the aprioristic theory of human action, the historian would be completely at a loss to deal with his material and would be unable to solve any of his problems. Such historians generally maintain that they are able to carry on their work completely free of theory.

We need not enter here into the investigation of whether historicism must lead necessarily to the one or to the other of these two views. Whoever is of the opinion that the doctrine of historicism cannot be consistently thought through to its conclusion will consider it futile to undertake such an investigation. The only point worth noting is that a sharp opposition exists between the view of the adherents of the Historical School and that of the majority of historians. Whereas the former believe that they can discover empirical laws from the data of history and want to call the compilation of such laws sociology and economics, most historians would not be willing to agree that this can be done.

The thesis of those who affirm the possibility of deriving empirical laws from historical data we shall call empiricism. Historicism and empiricism are, consequently, not the same thing, As a rule, though certainly not always, if they take any position on the problem at all, historians profess their adherence to historicism. With few exceptions (Buckle, for example) they are opponents of empiricism. The adherents of the Historical and the Institutionalist Schools take the point of view of historicism, although they find it impossible to maintain this doctrine in its purity as soon as they attempt to state it in a logically and epistemologically coherent manner; they are almost always in accord with empiricism. Thus, a sharp contrast of view generally exists between the historians and the economists and sociologists of the Historical School.

The question with which we are now concerned is no longer whether a prevailing regularity can be discovered in human action, but whether the observation of facts without any reference to a system of aprioristic knowledge of human action can be considered a method capable of leading us to the cognition of such a regularity. Can economic history furnish “building stones” for an economic theory, as Schmoller maintains?10  Can the “findings of economic history’s specialized description become elements of theory and lead to universal truths”? In this connection we shall not take up the question of the possibility of universal “historical laws” (which would therefore not be economic laws) that has often been exhaustively discussed.11  We shall limit ourselves to examining whether, by means of the observation of facts, that is, by an a posteriori method, we could arrive at statements of the kind sought for by the system of economic theory.

The method used by the natural sciences for the discovery of the laws of phenomena begins with observation. However, the decisive step is taken only with the construction of an hypothesis: a proposition does not simply emerge from observation and experience, for these always present us only with complex phenomena in which various factors appear so closely connected that we are unable to determine what role should be attributed to each. The hypothesis is already an intellectual elaboration of experience, above all in its claim to universal validity, which is its decisive characteristic. The experience that has led to the construction of the proposition is always limited to the past; it is always an experience of a phenomenon that occurred in a particular place and at a particular time. However, the universal validity claimed for the proposition also implies applicability to all other past and future occurrences. It is based on an imperfect induction. (No universal theorems emerge from perfect induction, but only descriptions of an event that occurred in the past.)

Hypotheses must be continually verified anew by experience. In an experiment they can generally be subjected to a particular method of examination. Various hypotheses are linked together into a system, and everything is deduced that must logically follow from them. Then experiments are performed again and again to verify the hypotheses in question. One tests whether new experience conforms to the expectations required by the hypotheses. Two assumptions are necessary for these methods of verification: the possibility of controlling the conditions of the experiment, and the existence of experimentally discoverable constant relations whose magnitudes admit of numerical determination. If we wish to call a proposition of empirical science true (with whatever degree of certainty or probability an empirically derived proposition can have) when a change of the relevant conditions in all observed cases leads to the results we have been led to expect, then we may say that we possess the means of testing the truth of such propositions.

With regard to historical experience, however, we find ourselves in an entirely different situation. Here we lack the possibility not only of performing a controlled experiment in order to observe the individual determinants of a change, but also of discovering numerical constants. We can observe and experience historical change only as the result of the combined action of a countless number of individual causes that we are unable to distinguish according to their magnitudes. We never find fixed relationships that are open to numerical calculation. The long cherished assumption that a proportional relationship, which could be expressed in an equation, exists between prices and the quantity of money has proved fallacious; and as a result the doctrine that knowledge of human action can be formulated in quantitative terms has lost its only support.

Whoever wants to derive laws of human action from experience would have to be able to show how given situations influence action quantitatively and qualitatively. It is psychology that generally has sought to provide such a demonstration, and for that reason all those who assign this task to sociology and economics are prone to recommend to them the psychological method. What is more, by the psychological method they understand not what was called psychological—in a rather inappropriate and even misleading sense—in the method of the Austrian School, but rather the procedures and discoveries of scientific psychology itself.

However, psychology has failed in this sphere. With the use of its methods it can, of course, observe unconscious reactions to stimuli in the manner of the biological sciences. Beyond this it can accomplish nothing that could lead to the discovery of empirical laws. It can determine how definite men have behaved in definite situations in the past, and it infers from its findings that conduct will be similar in the future if similar men are placed in a similar situation. It can tell us how English school boys behaved in the last decades when confronted with a definite situation, for example, when they encountered a crippled beggar. Such information tells us very little about the conduct of English school children in the coming decades or about the conduct of French or German school children. Psychology can establish nothing more than the occurrence of an historical incident: the cases observed have shown such and such; but the conclusions drawn from the observed cases, which refer to English school children of a definite period, are not logically justified when applied to other cases of the same historical and ethnological character that have not been observed.

All that observation teaches us is that the same situation has a different effect on different men. The attempt to arrange men in classes whose members all react in the same way has not been successful because even the same men react differently at different times, and there is no means of ascribing unequivocally definite modes of reaction to different ages or other objectively distinguishable periods or conditions of life. Consequently, there is no hope of achieving knowledge of a regularity in the phenomena by this method. This is what one has in mind when one speaks of free will, of the irrationality of what is human, spiritual, or historical, of individuality in history, and of the impossibility of rationally comprehending life in its fullness and diversity. One expresses the same idea in pointing out that it is not possible for us to grasp how the action of the external world influences our minds, our will, and, consequently, our action. It follows from this that psychology, in so far as it deals with such things, is history or, in the terminology of current German philosophy, a moral science.

Whoever declares that the method of historical understanding used by the moral sciences is appropriate also for economics should be aware of the fact that this method can never lead to the discovery of empirical laws. Understanding is precisely the method that the historical sciences (in the broadest sense of the term) employ in dealing with the unique, the non-repeatable, that is, in treating what is simply historical. Understanding is the mental grasp of something that we are unable to bring under rules and explain through them.12  This is true not only of the field traditionally designated as that of universal history, but also of all special fields, above all that of economic history. The position taken by the empiricist school of German economics in the struggle against economic theory is untenable also from the standpoint of the logic of the historical sciences as developed by Dilthey, Windelband, Rickert, and Max Weber.

In the empirical sciences the controlled experiment is indispensable for the a posteriori derivation of propositions whenever experience presents only complex phenomena in which the effect is produced by several interlinked causes. In historical experience we can observe only complex phenomena, and an experiment is inapplicable to such a situation. Sometimes it is said that a mental experiment (Gedankenexperiment) could take its place. However, a mental experiment, logically considered, has an entirely different meaning from a real experiment. It involves thinking through the implications of a proposition in the light of its compatibility with other propositions that we accept as true. If these other propositions are not derived from experience, then the mental experiment makes no reference to experience.

6. The Logical Character of the Universally Valid Science of Human Action

The science of human action that strives for universally valid knowledge is the theoretical system whose hitherto best elaborated branch is economics, In all of its branches this science is a priori, not empirical. Like logic and mathematics, it is not derived from experience; it is prior to experience. It is, as it were, the logic of action and deed.13

Human thought serves human life and action. It is not absolute thought, but the forethought directed toward projected acts and the afterthought that reflects upon acts done. Hence, in the last analysis, logic and the universally valid science of human action are one and the same. If we separate them, so as to contrast logic and practice, we must show at what point their paths diverge and where the special province of the science of action is to be found.

One of the tasks with which thought must cope in order to fulfill its function is that of comprehending the conditions under which human action takes place. To treat these in their concrete detail is the work of the natural sciences and, in a certain sense, also of history and the other historical sciences. Our science, on the other hand, disregarding the accidental, considers only the essential. Its goal is the comprehension of the universal, and its procedure is formal and axiomatic. It views action and the conditions under which action takes place not in their concrete form, as we encounter them in everyday life, nor in their actual setting, as we view them in each of the sciences of nature and of history, but as formal constructions that enable us to grasp the patterns of human action in their purity.

Only experience makes it possible for us to know the particular conditions of action in their concrete form. Only experience can teach us that there are lions and microbes and that their existence can present definite problems to acting man; and it would be absurd, without experience, to indulge in speculations about the existence or nonexistence of some legendary beast. The existence of the external world is given through experience; and if we pursue definite plans, only experience can teach us how we must act vis-?-vis the external world in concrete situations.

However, what we know about our action under given conditions is derived not from experience, but from reason. What we know about the fundamental categories of action?action, economizing, preferring, the relationship of means and ends, and everything else that, together with these, constitutes the system of human action?is not derived from experience. We conceive all this from within, just as we conceive logical and mathematical truths, a priori, without reference to any experience. Nor could experience ever lead anyone to the knowledge of these things if he did not comprehend them from within himself.

As an a priori category the principle of action is on a par with the principle of causality. It is present in all knowledge of any conduct that goes beyond an unconscious reaction. “In the beginning was the deed.” In our view the concept of man is, above all else, also the concept of the being who acts. Our consciousness is that of an ego which is capable of acting and does act. The fact that our deeds are intentional makes them actions. Our thinking about men and their conduct, and our conduct toward men and toward our surroundings in general, presuppose the category of action.

Nevertheless, we are quite incapable of thinking of this fundamental category and the system deduced from it without also thinking, at the same time, of the universal prerequisites of human action. For example, we are unable to grasp the concept of economic action and of economy without implying in our thought the concept of economic quantity relations and the concept of an economic good. Only experience can teach us whether or not these concepts are applicable to anything in the conditions under which our life must actually be lived. Only experience tells us that not all things in the external world are free goods. However, it is not experience, but reason, which is prior to experience, that tells us what is a free and what is an economic good.

Consequently, it would be possible to construct, by the use of the axiomatic method, a universal praxeology so general that its system would embrace not only all the patterns of action in the world that we actually encounter, but also patterns of action in worlds whose conditions are purely imaginary and do not correspond to any experience. A theory of money would still be meaningful even if throughout history there had never been any indirect exchange. That such a theory would have no practical importance in a world that did not use money would in no way detract from the truth of its statements. Because we study science for the sake of real life?and, it should be remembered, the desire for pure knowledge for its own sake is also a part of life?and not as a form of mental gymnastics, we generally do not mind forgoing the gratification that could be offered by a perfect, comprehensive system of the axioms of human action, a system so universal that it would comprise all thinkable categories of the conditions of action. Instead, we are satisfied with the less universal system that refers to the conditions given in the world of experience.

Nevertheless, this reference to experience in no way changes the aprioristic character of our knowledge. In this connection, experience is of absolutely no concern to our thinking. All that we owe to experience is the demarcation of those problems that we consider with interest from problems that we wish to leave aside because they are uninteresting from the point of view of our desire for knowledge. Hence, experience by no means always refers to the existence or nonexistence of the conditions of action, but often only to the presence of an interest in the treatment of a problem. In experience there is no socialist community; nevertheless, the investigation of the economy of such a community is a problem that in our age arouses the greatest of interest.

A theory of action could conceivably be constructed on the assumption that men lacked the possibility of understanding one another by means of symbols, or on the assumption that men—immortal and eternally young—were indifferent in every respect to the passage of time and therefore did not consider it in their action. The axioms of the theory could conceivably be framed in such universal terms as to embrace these and all other possibilities; and it would be conceivable to draw up a formal praxeological system patterned after the science of logic or the science built upon the axioms of, for example, Hilbertian geometry.14  We forgo these possibilities because conditions that do not correspond to those we encounter in our action interest us only in so far as thinking through their implications in imaginary constructions enables us to further our knowledge of action under given conditions.

The method actually employed by economists in the treatment of their problems can be seen with particular clarity in the case of the problem of imputation. Conceivably it would be possible to formulate the theory of the appraisement and pricing of the factors of production (goods of higher order, producers’ goods) in the broadest generality so that, for one thing, we would work only with an unqualified concept, viz., means of production. We could then elaborate the theory in such a way that the three factors of production that are enumerated in the customary presentation would appear as special cases. But we proceed differently. We do not bother to furnish a universal imputation theory of the means of production as such, but proceed immediately to the treatment of the three categories of means of production: land, labor, and capital. This practice is altogether warranted by the object of our investigation, of which we must never lose sight.

However, the renunciation of axiomatic universality and precision also conceals many dangers, and it has not always been possible to avoid them. It is not only the Marxist theory of classes15  that has failed to grasp the categorial character of each of these specific groups of factors of production. To be sure, it was noted that the peculiarity of land as a factor of production lies in the difference in the usefulness of individual pieces of land from the point of view of the goals of action; the theory of ground rent never lost sight of the fact that land is appraised differently according to its quality and location. However, the theory of wages did overlook the fact that labor too is of different quality and intensity and that on the market there is never a supply of or a demand for “labor” as such, but only a supply of and a demand for labor of a definite kind. Even after this fact was recognized, an attempt was made to evade its consequences by assuming that what forms the bulk of the supply and is chiefly in demand is unskilled labor and that it is permissible to ignore, as quantitatively negligible, skilled, “higher” labor. The theory of wages would have been spared many errors had it been kept in mind what function the special treatment of labor in the theory of distribution is called upon to fulfill and at what point it becomes necessary to speak no longer simply of labor, but of labor of a definite quality that is offered or sought at a given time in a given place. It was still more difficult for the theory of capital to free itself of the idea of abstract capital, where the categorial difference between land, labor, and capital is no longer in question, but where the appraisement of definite capital goods, supplied or demanded in a definite place at a definite time, is to be considered. Likewise in the theory of distribution and in the theory of imputation, it was not easy to shake off the influence of the universalist view.16

Our science deals with the forms and patterns of action under the various categories of its conditions. In pointing this out we are not drafting a plan for a future science. We do not maintain that the science of human action should be made aprioristic, but that it is so already. We do not want to discover a new method, but only to characterize correctly the method that is actually used. The theorems of economics are derived not from the observation of facts, but through deduction from the fundamental category of action, which has been expressed sometimes as the economic principle (i.e., the necessity to economize), sometimes as the value principle or as the cost principle. They are of aprioristic derivation and therefore lay claim to the apodictic certainty that belongs to basic principles so derived.

7. Sociology and Economics: Some Comments on the History of Economic Thought

It is in sociology and above all in economics that we encounter the universally valid science of human action. Whatever has hitherto been accomplished in this science is to be considered either sociology or economics in the traditional sense. Names are conventional designations that in no way can directly—that is, without reference to an existing terminolop—express the essence of what is designated, as a still widespread view demands. Consequently, there is no point in examining the appropriateness of the terms “economics” (theory of the economy) and “sociology” (theory of society) as names for the universally valid science of human action. Inherited from the past, they have accompanied the science on its way to the development of a completely comprehensive theoretical system. That is why these terms, in accordance with the way in which words are coined, refer to the historical starting point of the investigation and not to the logical foundation of the developed theory or to the central idea of the theory itself. Unfortunately, this fact has not always been appreciated, and repeated attempts have been made to define and comprehend the scope and task of the science on the basis of nomenclature. In the spirit of a crude form of conceptual realism, society was designated as the subject matter assigned to sociology, and the economy, or the economic aspect of culture, as the theme of economics. And then no pains were spared in the attempt to ascertain what, after all, society and the economy really are.

If today we may take the view that the subject of our science is human action, without fear of thereby arousing more hostility than that which every scientific theory encounters, it is because of the work of several generations of scholars. The investigations of such completely different thinkers as Cairnes, Bagehot, Menger, Max Weber, and Robbins show that they are all guided by this idea. In view of the history of science it is understandable that the claim of economics to be aprioristic and not empirical may still give rise to opposition because the existing literature has only slightly prepared the way for it. The two hundred years in which the development of our science has taken place have not been favorable to the acknowledgment of a new field of aprioristic knowledge. The successes achieved by the use of the empirical methods of the natural sciences and by the careful investigation of sources on the part of the historical sciences have attracted so much attention that no notice was taken of the advances that the aprioristic sciences were making at the same time, although without them the progress made by empiricism would not have been possible. An age that wanted to deny the aprioristic character even of logic was certainly not prepared for the recognition of the aprioristic character of praxeology.

A glance at the theories of Senior, John Stuart Mill, Cairnes, and Wieser will show that, in spite of different terminologies and divergent views of the logical character of economics and of its place among the sciences, the conception of it as an aprioristic discipline was not, in fact, very far from the position taken not only by the economists who adhered to the views of the classical school, but also by the authors of the subjective theory of value. However, in this connection, one should be careful not to draw too sweeping conclusions from their statements, in view of the profound changes that have taken place since then in the conception of the fundamental logical and methodological questions and, correspondingly, also in the terminology of the literature devoted to their treatment.

According to Senior, there is no doubt that the science of economics “depends more on reasoning than observation.”12  Concerning the method of the economist he states:

His premises consist of a few general propositions, the result of observation, or consciousness, and scarcely requiring proof, or even formal statement, which almost every man, as soon as he hears them, admits, as familiar to his thoughts, or at least as included in his previous knowledge.18

Here both the observation of the external world and self-consciousness are mentioned as the sources of our knowledge. However, it is said that these propositions, which originate from within, either are immediately evident or follow necessarily from immediately evident propositions. Consequently, they are of aprioristic derivation and are not dependent upon experience, unless one wishes to call aprioristic cognition inner experience.

John Stuart Mill recognizes only empirical science and rejects in principle “a supposed mode of philosophizing, which does not profess to be founded upon experience at all.” He distinguishes two methods of scientific thought: the method a posteriori, “which requires, as the basis of its conclusions, not experience merely, but specific experience,” and the method a priori, by which he understands “reasoning from an assumed hypothesis.” In addition, he says of the latter method that it is “not a practice confined to mathematics, but is of the essence of all science which admits of general reasoning at all.” Political economy is to be characterized “as essentially an abstract science, and its method as the method a priori.”19

It would lead us far from our subject to point out and examine what separates us today from Mill’s conception of the a priori and of economics. In his view, even axioms are “but a class, the most universal class, of inductions from experience’ ‘; indeed, logic and mathematics are empirical sciences.20  just as geometry “presupposcs an arbitrary definition of a line: that which has length, but not breadth,” so “does political economy presuppose an arbitrary definition of man, as a being who invariably does that by which he may obtain the greatest amount of necessaries, conveniences and luxuries, with the smallest quantity of labor and physical self-denial with which they can be obtained in the existing state of knowledge.”21  Here the only important thing for us to note is that Mill places logic, mathematics, and the “moral sciences” in the category of disciplines for which the appropriate method is the “method a priori.” For the “moral sciences” this is “the only method,” since the impossibility of performing experiments precludes the “method a posteriori.”22

Even the contrast that Caimes drew between the inductive and the deductive methods does not correspond to the distinction that we make between empiricism and apriorism. His terminology was that of the philosophy of his age, which was completely under the influence of empiricism and psychologism. When Cairnes proceeds to answer the question whether economics is to be studied according to the deductive method or?as is generally assumed?according to the inductive method, and concludes by ascribing principal importance to the former, he employs a terminology that is so far removed from that of modern logic and epistemology that it would require intensive analysis to translate the meaning of his words into language familiar to the contemporary reader. But his actual reasoning, even though formulated in different terms, is closer to our own conception than would appear at first sight. Cairnes points out that the position of the natural scientist and that of the economist in relation to the subject matter of their investigations are entirely different. There is no other method available to the natural scientist than that of inductive?we would say: empirical?investigation, for “mankind have no direct knowledge of ultimate physical principles.”23  It is otherwise in the case of the economist. “The economist starts with a knowledge of ultimate causes.”24  We have at our disposal “direct knowledge . . . of causes in our consciousness of what passes in our own minds, and in the information which our senses convey, or at least are capable of conveying, to us of external facts.”25  Thus, the economist is “at the outset of his researches . . . already in possession of those ultimate principles governing the phenomena which form the subject of his study.”26

Even more obviously than Cairnes, Wieser tends toward the view that economics is an aprioristic science. He failed to Teach this conclusion only because the prevailing epistemological theories barred the way.27  The function of economic theory, according to Wieser, consists in “scientifically explicating and developing the content of common economic experience.” The consciousness of every economically active human being, he continues, provides him with

a fund of experiences that are the common possession of all who practice economy. These are experiences that every theorist already finds within himself without first having to resort to special scientific procedures. They are experiences concerning facts of the external world, as for instance, the existence of goods and their orders; experiences concerning facts of an internal character, such as the existence of human needs, and concerning the consequences of this fact; and experiences concerning the origin and course of economic action on the part of most men.

The scope of economic theory extends

exactly as far as common experience. The task of the theorist always ends where common experience ends and where science must collect its observations by historical or statistical investigation or by whatever other means may be deemed reliable.28

It is clear that what Wieser calls “common experience,” in contradistinction to the other kind, is not the experience with which the empirical sciences are concerned. The method of economics, which Wieser himself calls the psychological method, but which at the same time he also sharply distinguishes from psychology, consists, he says, in “looking outward from within the consciousness,” while the natural scientist (and therefore empirical science) observes the facts “only from without.” Wieser sees the cardinal error of Schumpeter precisely in his belief that the method of the natural sciences is suitable also for economic theory. Economics, Wieser maintains, finds “that certain acts are performed in the consciousness with the feeling of necessity.” Why, then, “should it first go to the trouble of deriving a law from a long chain of induction when everyone clearly hears the voice of the law within himself?”29

What Wieser calls “common experience” is to be sharply distinguished from experience acquired “through observations collected in the manner of historical or statistical studies.” Clearly, this is not experience in the sense of the empirical sciences, but the very opposite: it is that which logically precedes experience and is, indeed, a condition and presupposition of every experience. When Wieser seeks to mark off economic theory from the historical, descriptive, and statistical treatment of economic problems, he enters upon a path that must lead, if one follows it consistently, to the recognition of the aprioristic character of economic theory. Of course, it should occasion no surprise that Wieser himself did not draw this conclusion. He was unable to rid himself of the influence of Mill’s psychologistic epistemology, which ascribed an empirical character even to the laws of thought.30

• 1Cf. Rickert, Kulturwissenschaft und Naturwissenschaft (3rd ed.; Tübingen, 1915), pp. 28 ff.
• 2Cf. below p. 74.
• 3Sombart, Die drei Nationalökonomien (Munich and Leipzig, 1930), p. 253.
• 4Ibid.
• 5Sombart, op. cit., p. 247.
• 6Sombart, op. cit., p. 298.
• 7Knies, Die politische Okonomie vom geschichtlichen Standpunkte (Braunschweig, 1883), p. 24.
• 8Cf. Lexis, Allgemeine Volkswirtschaftslehre (3rd ed.; Berlin and Leipzig, 1926), p. 14.
• 9For a critique of this second point of view, cf. below pp. 25 ff. and pp. 119 ff.
• 10Schmoller, “Volkswirtschaft, Volkswirtschaftslehre und Methode,” Handwörterbuch der Staatswissenschaften (3rd ed.), VIII, 464.
• 11Concerning historical laws, cf. below pp. 109 ff.
• 12Cf. below pp. 130 ff.
• 12Senior, Political Economy (6th ed.; London, 1872), p. 5.
• 13Several great economists were at the same time great logicians: Hume, Whately, John Stuart Mill, and Stanley Jevons.
• 14Cf. Eugen Slutsky, “Ein Beitrag zur formal-praxeologischen Grundlegung der Ökonomik,” Annales de la classe des sciences sociales-économiques (Kiev: Académie Oukraïenne des Sciences, 1926), IV.
• 15On this point cf. my Socialism, trans. by J. Kahane (new ed.; New Haven, 1951), pp. 331 f.
• 16On the universalist view cf. below pp. 153 f. For a special application of the reasoning outlined in the text to the theory of capital, cf. below pp. 217 ff.
• 18Ibid., p. 3.
• 19John Stuart Mill, Essays on Some Unsettled Questions of Political Economy (3rd ed.; London, 1877), p. 143.
• 20John Stuart Mill, System of Logic Ratiocinative and Inductive (8th ed.; London, 1872), 1, 290 ff.
• 21John Stuart Mill, op. cit., p. 144
• 22John Stuart Mill, op. cit., pp. 146 ff.
• 23Cairnes, The Character and Logical Method of Political Economy (3rd ed.; London, 1888), p. 83.
• 24Ibid., p. 87.
• 25Ibid., p. 88.
• 26Ibid., pp. 89 ff.
• 27Menger’s pioneering investigations are still further weakened by their dependence on Mill’s empiricism and psychologism. In this connection I wish to emphasize that I employ terms like “empiricism,” “historicism,” etc. without any connotation of a value judgment. Cf. Husserl, Logische Untersuchungen (3rd ed.; Halle, 1922), 1, 52, footnote.
• 28Friedrich von Wieser, “Theorie der gesellschaftlichen Wirtschaft,” Grundriss der Sozialökonomik (Tübingen, 1914), p. 133.
• 29Friedrich von Wieser, “Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie,” <em>Gesammelte Abhandlungen</em>, ed. by F.A. Hayek (Tübingen, 1929), p. 17.
• 30Among the most recent works devoted to the logic and methodology of the science of human action are those of Karel Englis: Grundlagen des wirtschaftlichen Denkens, trans. by Saudek (Brünn, 1925); Begrundung der Teleologie als Form des empirischen Erkennens (Brünn, 1930); and Teleologische Theorie der Staatswirtschaft (Brünn, 1933). The opposition between causality and teleology, which is the chief concern of Englis, is not within the scope of the problems dealt with here.