The Science Called Economics
NOVEMBER 01, 1960 by PERCY L. GREAVES JR.
Mr. Greaves is an economist and free-lance writer.
"It is no part of the task of science to examine ultimate questions or to prescribe values and determine their order of rank…. The simpler task of science is to develop a theoretical system of cause-and effect relationships enabling us to arrange our action in such a way that we can attain the goals we aim at….
"Metaphysics and science perform different functions…. They can work side by side without enmity because they need not dispute each other’s domain as long as they do not misconstrue their own character. A conflict arises only when one or the other attempts to overstep the boundary between them… Reason and science deal only with isolated fragments detached from the living whole…. We are unable to grasp the whole by reasoning, but we can experience it in living."
These are the words of Ludwig von Mises as translated by George Reisman in Epistemological Problems of Economics (D. Van Nostrand Company, 239 pp., $5.50), which first appeared in 1933 under the German title Grundprobleme der Nationalökonomie. In making this basic work available in English, Mr. Reisman and his editor, Mr. Arthur Goddard, have performed a valuable service for serious students, although in a few cases the translated words are not those Professor Mises would now use. The volume contains eight essays devoted to the fundamental problems of human knowledge which had to be solved before man’s grasp of economics could be called scientific. They reveal some of the many steps by which the eminent professor reached the conclusions so succinctly presented in the first two hundred pages of his great treatise, Human Action.
"The purpose of this book," as Mises’ Preface tells us, "is to establish the logical legitimacy of the science that has for its object the universally valid laws of human action, i.e., laws that claim validity without respect to the place, time, race, nationality, or class of the actor…. I considered it essential to reformulate, in this context," he writes, "several basic ideas of economic theory in order to free them of the inconsistencies and confusions that had generally attached to them in previous presentations. I thought it pertinent also to expose the psychological factors that nourish the opposition to the acceptance of economic theory."
The first and longest essay discusses "The Task and Scope of the Science of Human Action." Dr. Mises defines human action as "conscious behavior on the part of a human being."
A man without ideas is incapable of seeing any significance in any facts his senses may register. He is thus incapable of acting. Ideas are "always logically prior" to human experience or understanding, hence they precede human action, and thus action is, by definition, always rational.
This means that "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…. Nor could experience ever lead anyone to the knowledge of these things if he did not comprehend them from within himself."
The concept of action implies, as prerequisites, "a state of dissatisfaction," and "the possibility of removing or alleviating it by taking action." In short, the concept of action implies an understanding of cause and effect. The effect that each action is designed to bring about is "the removal of a dissatisfaction" the actor believes would exist if the action were not undertaken.
"Everyone again and again finds himself confronted with a situation in which his conduct… helps to determine whether or not his goals are attained…. The point at which the science of action begins its work is the mutual incompatibility of individual desires and the impossibility of perfect satisfaction. Since it is not granted to man to satisfy all his desires completely, inasmuch as he can attain one end only by foregoing another… he must choose and value, prefer and set aside—in short, act….
"Economic action consists in the endeavor… to satisfy wants as far as the scarcity of means allows…. Goals change, ideas of technology are transformed, but action… always seeks means to realize ends, and it is in this sense always rational and mindful of utility. It is, in a word, human."
In a short review one cannot list all the important points that Dr. Mises makes in his second essay, "Sociology and History," which deals with the basic distinctions and overlappings of history and economic theory.
His careful scalpel exposes the fine points that historians and economists must first grasp before they can add to man’s knowledge of their subjects. He applies the principles of his first essay to show that men cannot even think of history, much less interpret it, without first having some ideas about action and causality.
He thus explodes the "naive belief that, unprejudiced by any theory, one can derive history directly from the sources." He finds that "no explanations reveal themselves directly from the facts." Since "history cannot be imagined without theory," the historian must choose between "naive obsolete theory" and "universally valid propositions about human action."
The shorter essays cover a number of other important points that popular thinking now neglects. In one he distinguishes between "conception," which "seeks the meaning of action through discursive reasoning," and "understanding “which "seeks the meaning of action in empathic intuition of a whole." He also points out that "where conception is at all applicable, it takes precedence over understanding in every respect." For "what has been arrived at by means of conception must be acknowledged as established, or else must be shown to be either unproved or confuted." In short, we never "play a hunch" when our reasoning presents us with an answer we consider sound.
We also learn that "using concepts of changeable content, one can argue excellently…. However… this is not a need of scientific thought… but the need of political parties that are unable to justify their programs logically. Today these parties are striving for world dominion with good prospect of success. The masses follow them, the State has handed over all the schools to them, and the literati praise them to the skies." Written thirty years ago, this statement still stands.
Several of the essays present details of man’s slowly developing knowledge of scientific economic thought. Mises cites many of the confusions that led to the popular fallacies of our day. He also points out the fundamental weaknesses of the classical economists and how their errors led to the now exploded theory of "the economic man." He devotes many pages to the slow evolution of man’s understanding of the full significance of the subjective theory of value. He indicates errors in the original presentations that led to later ambiguities. The correct application of this theory provides all the clues we need to diagnose the causes of the so-called "business cycle." He stresses the senselessness of trying to solve this and other economic problems by gathering and studying facts and statistics without benefit of a scientific theory of cause and effect.
One valuable essay, "The Psychological Basis of the Opposition to Economic Theory," goes a long way toward explaining present conditions. He considers here the views of those who discount the teachings of economics because they are "deliberately not taught at the universities." Such people "consider a theory to be finally disposed of merely because the authorities who control appointments to academic positions want to know nothing of it." These people see "the criterion of truth in the approval of a government office."
This essay also traces the antipathy and disdain for the creators of wealth from Cicero to modern times. It has been propagated throughout history by the "great aristocratic landowners, princely courtiers, officers of the army and government officials…. It springs directly from the views held in the circles of the educated classes who were in public service and enjoyed a fixed salary and a politically recognized status." Perhaps it is only natural that such vested interests should resent a science that reveals who are the real parasites of our civilization.
The world today is sadly in need of the knowledge that only the science of economics can provide. Millions believe that economic laws can be repealed and poverty wiped out by voting to do so at the polls. Too few know that there are unalterable laws in the social realm that must be learned and harnessed if the world is to prosper in peace.
The fallacies we hear and read every day were originally the ideas of men little known to most Americans. Dr. Mises has traced a goodly number of these fallacies to their sources. He then uses the lucidity of his logic to expose them.
Ludwig von Mises is the modern master of the science known as economics. His writings may be difficult, but if each of us would read and digest what he could, we would all then have a better grasp of the policies we must pursue, if ever we are to enjoy the continuous prosperity of a durable free society.