4. The Analysis Developed: Mises

C H A P T E R 4

The Analysis Developed: Mises

I

WHEN MISES ENTERED THE UNIVERSITY of Vienna in 1900, he was “not at all interested in the Austrian School of Economics” (as he says later in his memoirs). In fact, in the fi eld of economics, he considered that there was only economic history — i.e. there was nothing to which a general analysis could be applied. And as economic history was an historical discipline, it could

“never yield economic laws”. So Mises “saw no possibility” of an analytical discipline of economics; indeed, he says of himself, “no one was a more consistent [historicist] than I!” In other words, he not only denied that there could be any general analytical economics at all, he went much further: he denied that the study of historical experience could yield any kind of general analytical proposition, no matter how limited and restricted in scope to particular historical periods. Thus Mises outdid the Younger German Historical School.1

Mises great interest lay in “problems of economic, legal, administrative and social history”, but not in political history. As “the school of law off ered greater opportunities for the study of history”, he “decided to study law”. About half the (degree) course consisted of legal history; the rest was “political economy and public law”. At this time (around 1900) the Younger German Historical School, led by Gustav Schmoller, dominated the teaching of history and of economics in the German speaking world; the exceptions (in economics)

were Menger, Bohm Bawerk, Wieser and the other members of the “Austrian

School”, as Schmoller and his followers had dubbed them contemptuously during the 2Methodensreit .

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Although Mises repudiated the very possibility of any economic theory, he objected very strongly to the highly unsatisfactory historical work produced by the Younger German School; he is quite caustic in his memoirs.

Because of his “intense interest in historical knowledge”, he was repelled, amongst other things, by their illogic, relativism, militarism and power-worship, and by the way they collapsed “is” into “ought”. They glorifi ed and justifi ed “Prussian authoritarian government”; they “did not deal with scientifi c problems”. Their “historical investigations” were at best “clumsy data publications” that failed to advance knowledge. So Mises says of his own teacher’s work, that “it was neither economic … nor administrative history”; it was

“merely an extract from government documents, a description of policy as found in government reports”. Although Mises attempted to free himself from this approach, he says of his fi rst two publications (in 1902 and 1905) that rather than being “economic history”, they were histories of “government measures”. Even as he worked on these, he planned to research extensively into

“economic and social history” and not into “offi cial reports”. But he “never again had the time” for archival and library research. 3

At the beginning of his university years, in addition to being an historicist in relation to economic analysis, Mises was “a thorough statist”, but also an “anti-Marxian”. In his fi rst two years at university he uncritically devoured

“all the writings of the social reformers”, believing with them that success came when social measures were radical enough. He “opposed” liberalism “vigorously” as an “obsolete world-view”.4 In sum: Mises initially agreed with the

Younger German School that economics could not exist at all: i.e. there could be no such analytical discipline. But he disagreed with them that historical experience could give rise to theory. And he was profoundly and fundamentally dissatisfi ed with their historical work, since he already saw a diff erence between historical study and the delineation of government policy. In addition, in politics he was an anti-liberal interventionist.

Mises Joins the Austrian School

Mises’ contact with the Austrian School shattered and transformed his ideas radically. He read Menger’s Principles “around Christmas 1903”. He says: “the reading of this book … made an ‘economist’ of me.” It demolished, once and for all, his previously-held view that there could be no general analytical discipline of economics, only the historical study of economic activity.

By late 1903 and early 1904, he was already beginning to doubt the effi cacy of interventionism, as a result of research into housing conditions and the legislation covering domestic servants (part of his university studies). Then Bohm-Bawerk joined the University of Vienna in 1904; Mises attended his seminar Early Modern England | Sudha Shenoy 145

upto 1913. For the fi rst time, he was forced to take liberalism seriously. Mises says it was “further study of economics” that led him to abandon his previous political stance. 5

At about the same time (late December 1903/early 1904) Mises also read

Menger’s Investigations into Method and the literature of the Methodensreit.

Mises describes the Investigations as “a polemic essay against” the lethal ideas disseminated from the Prussian universities. But in the context of the specifi c issues raised during the Methodensreit, he found it “a splendid work”. He remained dissatisfi ed, however, with the foundations on which the dispute proceeded.6 This led him to penetrate into the fundamental analytics of the study of human action, with monumental and exhaustive results.

Hayek worked directly with Mises for some ten years (from late 1921 to late 1931); Hayek also attended Mises Privatseminar (from 1924 onwards).

Hayek confirms this picture — that Mises was led from history to theory because he saw the former needed suitable analytical tools:

“Mises’ initial interests had been primarily historical and … he retained a breadth of historical knowledge rare among theoreticians.

But … his dissatisfaction with the manner in which historians and particularly economic historians interpreted their material led him toeconomic theory”.

Hayek further emphasises “Mises’ astounding historical erudition” and his “astounding knowledge of history”. He says Mises was “better informed about daily politics, modern history, and general ideological developments than most others”. Hayek reinforces Mises’ blistering opinion of the Younger

Historical School as expressed in Mises’ memoirs: “Mises does not exagger— ate in his description of the teaching of economics … by the historical school.”

Hayek also tells us that Mises met the eff ects daily: in both his offi cial work and his teaching, Mises “had constantly to come to terms with the interventionism taught by the sociological-historical school of German economics…” Hayek goes on to say that it was “in occupying himself with [the latter’s] literature”

that Mises took up “an increasingly critical attitude toward the academic economics of the German-speaking area”. Thus Hayek adds his own implicit confi rmation of the dominance of the Younger German Historical School. Finally,

Hayek confi rms that Bohm-Bawerk’s infl uence led to Mises’ “radical conversion to … liberalism.” 7

In sum: Mises wrote in an historical context in which the Younger German

Historical School determined and dominated the intellectual environment of history and the social sciences. This meant that in socioeconomic analysis the

‘Austrians’ were the only genuine alternative available, as the Anglo-American 146 Early Modern England | Sudha Shenoy

neoclassicals, in the area of economics per se, were foreign in every sense of the term. So for Mises the Methodensreit remained the reference-framework within which he developed further the subjectivist analysis of human action, pioneered by Menger. — It is crucial for the historian to remember this historical context. To forget it, is to read Mises’ works in a vacuum.

The Historical School held that, in any historical period, the political forces and the developmental stage of the economic organisms found in that period, shaped the economic regularities to be seen in it. This School denied that it was possible to have a general abstract economic analysis independent of some particular historical period. As against this historicist holism, Menger saw that the one set of socioeconomic phenomena, the outcome of individuals’

actions, were — and had to be — studied both historically and theoretically:

each approach examined diff erent aspects of the same object. Mises extended this insight to recognise from the very outset, that for the one fi eld of study

— human action — there was the one discipline — praxeology, with its two branches, history and subjectivist economics. The latter provided the necessary analytical framework — general and abstract — for the former. Thus, in an intellectual environment moulded by the Historical School, only the Austrians developed a general economic theory, as the analytical part of the wider study of human action.8 And so for Mises, throughout his life, “economics” always meant the subjectivist discipline which was one branch of praxeology, the study of human action, the other branch being history. This analytical framework is patently quite distinct from twentieth century neoclassical economics, which follows the positivist model, and is therefore pure theory — developed in total ignorance of, and isolation from, professional historical research, its conclusions and problems. It is also pertinent here to remember that Mises’

fi rst major work was published as long ago as 1912, and that all his writings right up to Nationalokonomie (1940) were produced (eff ectively) in an intellectual environment which was actively hostile to the very notion of general, abstract economic analysis — which in turn, was provided only by the Austrian School. It should be remembered further that a substantial portion of his work, right up to 1945, was pre-occupied with analysing the intellectual causes contributing to the diffi cult political and social history of the German-speaking world and of Central Europe.

Mises’ Subjectivist Criticism of the Historical School

The outline of the analytical framework which Mises later developed explicitly, is discernible in Socialism (whose outline, in turn, was sketched earlier in the fi nal part of Nation, State and Economy. This last is a searing indictment of the policies and political ideas followed in the German world Early Modern England | Sudha Shenoy 147

before, during, and immediately after, the First World War). Mises’ fi rst analytical work, however, consisted of the eight essays assembled into Epistemologi-cal Problems of Economics (1933; trans. 1960). Although seven of the essays had been published separately between 1928 and 1932, Mises wrote them as components in a single line of development: “From the outset … they were planned and conceived as parts of a whole and … given further unity by various revisions.” These essays were intended “to clear the way for the systematic analysis of the phenomena of human action”. Thus they were “the necessary preliminary study for a thorough scrutiny of the problems involved” — as provided in his major treatise, 9Human Action .

In this opening analysis, Mises set out to expound subjectivist economics as against the Historical School:

“The purpose of this book 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”.

This exposition required that the fundamental defects of the Historical School’s position be revealed and cleared away fi rst: it was necessary to

“[emphasise] the untenability of historicism before embarking upon the task of setting forth the logical character of the science of human action.” For example, a leading historicist held that scarcity was only found in a money economy …, while another argued that marginal utility theory was “pointless” in the Middle

Ages; the theory was “best tailored for the free economy.”10

Mises recognised that his criticism applied to the American Institutionalists as well:

“The goal of my analysis is … to distinguish a prioristic science from history … and to demonstrate the absurdity of the endeavours of the Historical and Institutionalist Schools to reconcile the logically incompatible.”11

In short, Mises opposed both Schools on the same grounds: because they denied that a general analytical theory of human action — subjectivist economics — could ever exist. This repudiation had both analytical and political roots

(as Mises saw it). We may fi rst set out what Mises found analytically objection— able in the historicist position.

Mises pointed out that such a position could not constitute a systematic approach: “Historicism by its very nature is not a system, but the rejection and denial in principle of the possibility of constructing a system.” He denied both that historical materials could be investigated without any general concepts and that historical investigation could yield general theories:

“What is under attack … is the doctrine that would have us believe, on the one hand, that historical data can be approached without any theory of action, and, on the other hand, that an empirical theory of action can be derived by induction from the data of history.”

Mises further explained that historical study could not produce any general propositions at all, whether confi ned to a particular period or no:

“What is denied is the possibility of deriving a posteriori from historical experience empirical laws of history in general, or of economic history in particular, or ‘laws’ of ‘economic action’ within a defi nite historical period.”12

Mises develops these objections by analysing the diff erences between the theoretical and the historical study of phenomena: historical study is only of particular events; but to make general statements that could be found generally applicable independent of historical context requires a general analytical framework, which is non-historical.13 The Historical School follow the model of art history in which artefacts, buildings etc. are classifi ed according to the stylistic period manifested in their features. 14 By analogy, the Historical School assert that “from the data of economic history”, it is possible to derive “economic laws applicable to particular historical periods”. But this

“characterisation of particular periods of history and their economic usages”

is still research into historical materials, requiring “the specifi c understanding of the past.”15 It is not a general non-historical analysis of general categories and concepts, applicable and usable across historical periods as required by the historical problem presented. And whereas art history cannot predict the future, the Historical School regularly claim to do so.16 Thus they contradict themselves: if economic regularities are contingent on the historical period considered, then the historicist can only wait to see what future periods will bring. But if it is asserted that certain economic regularities will apply in future periods, then it is conceded that there is something operative in the historical data which is independent of historical period and which therefore requires a general, abstract, non-historical analysis. 17

Mises went on to assess the eff ects of historicism on historical work in the

German world up to the late 1920s: Because the historicists rejected subjectivist theory [the only general economic theory then available in the German world] “[t]he eff ect this has had on economic history is nothing short of grotesque.” Economic historians remain “content … with the small measure of theoretical knowledge that today reaches everyone through the newspapers and daily conversation.” Thus historical work has suff ered:

“the age in which historicism has held sway has been characterised by a progressive decline in historical research and historical writing. …

the upshot of historicism has been … the publication of sources and

… dilettantist constructions …”

In sum, historicism couldn’t deliver its own goods: “The Historical

School failed precisely in the province of social and economic history, which it claimed as its proper domain.”18

Mises’ own exposition and development of the framework which Menger built, is shaped almost entirely in response to the position taken by the Historical School. Each element in Mises’ analysis is set out below; here I shall simply note his key responses in bald outline: Firstly, Mises emphasised repeatedly that historical research and narrative was possible only with the use of general theoretical concepts regarding the actions of human beings. Historians are not conscious of this, because the necessary concepts are in most cases relatively simple. But just as M. Jourdain spoke prose with no explicit knowledge he was doing so, historians too organise their work around analytical ideas, implicit for the most part.19 Secondly, historical materials cannot yield general theories because such materials record complex phenomena, to whose historical appearance and development many diff erent infl uences have contributed.

(Mises built here on Menger’s observation set out above: real world phenomena are the joint outcome of many diff erent infl uences; hence various scientifi c disciplines are necessarily utilised in analysing these phenomena). So to analyse complex historical developments, previously-elaborated theories have to be used, according to the problem under review.20 The most important of these for the historian, is of course the general theory of human action: subjectivist economics.21

The Political Basis of the Historical School

We may now briefl y set out Mises’ account of the political foundations of historicism. 22

Mises pointed out that the Historical School subscribed wholly to the view expressed by the Rector of the University of Berlin 23 in 1870 (he was also head of the Prussian Academy of Science): “we, the University of Berlin, quartered opposite the King’s palace, are, by the deed of our foundation, the intellectual bodyguard of the House of Hohenzollern.” 24 And so, as Mises put it, “the lofty idols” of the Historical School were “the Hohenzollern Electors of Branden— burg and the Kings of Prussia.” Therefore this School held that “power (Macht)

is the deciding factor in social life”; nothing else is important in it. Schmoller and his followers had not read David Hume, so their “notion of power was very materialistic. Power … was soldiers and guns.” So the Historical School held that power — nullifi ed analytical economics: “The study of economic theory 150 Early Modern England | Sudha Shenoy

was useless, for the various systems of theoretical economics all overlooked the fact that governments had the power to alter all conditions.” 25

In Mises’ view, both the Historical School and the Institutionalists argued that power, not individual choice, ultimately lay behind economic phenomena:

“… the choosing and acting individual is … an unrealistic concept. Real man is not free to choose and to act.” People are “subject to social pressure” and to

“irresistible power”. Thus not “individuals’ value judgments” but “the interactions of the forces of power” are what “determine … market phenomena.”26

So in the universities, the Historical School “replaced the study of economic theory by the history of Prussian administration…”27 They sought to

“refute the teachings” of subjectivist economics and so they “compiled numerous volumes dealing with the history of the administration of these glorious princes.” The Historical School (said Mises) contrasted their factual methods with the abstract doctrines of the classicals:

“This, they wrote, is a realistic approach to the problems of state and government. Here [are] unadulterated facts and real life, not the bloodless abstractions and faulty generalisations of the British doctrinaires.”

Thus the Historical School aimed to condemn subjectivist economics and “substitute” in its place “the economic aspects of political science”

(Wirtschaftliche Staatswissenschaften). Mises saw this same outlook in “British Fabianism and American Institutionalism.”28

In sum: Mises regarded the Historical School as denying that economic regularities might set limits to the exercise of political power. As he saw their stance, they considered that political power made all economic things possible.

Mises considered this a political position, not an analytical one; and he clearly

— indeed, vehemently — saw the analysis of human action as an analytical, not a political exercise. (But from the standpoint of the Historical School, to suggest that political power might not be able to control all economic phenomena can, of course, only be a political stance which in this view can only spring from a political opposition to the exercise of power).

Mises and Praxeology

Turning now to Mises’ development of the praxeological framework: Mises refi ned and exhaustively developed key aspects of Menger’s analytical framework, from the foundations up. The outcome was not only thorough, it was also massive and new. Hayek built on Mises and extended the remaining areas of Menger’s analysis far beyond where Menger had left them. It must be emphasised that because Mises and Hayek were building on Menger, they were developing further an analytical framework specifi cally needed for historical research: Early Modern England | Sudha Shenoy 151

to grasp key historical developments not comprehensible otherwise. Since historical study is an empirical discipline, the construction of such a framework can be done only from a thorough fi rst-hand knowledge of the foundations, conclusions and practical problems of historical research: hearsay cannot do.

In short, neither Menger nor Mises nor Hayek were pure theorists after the neoclassical model: they did not write on the basis of a total ignorance of and complete isolation from, professional historical work.

Menger saw that individuals’ actions gave rise to socioeconomic phenomena and that this single fi eld of study was “investigated from a double point of view”: theory looked to the general aspects of all particular and specifi c phenomena, while historical study analysed these particular phenomena in the round — in all their varied, manifold and specifi c aspects.29 Mises refi ned this insight into the recognition that human action — the actions of individuals using means to achieve ends — is the object of analysis common to both social theory and historical research: “human action constitutes the subject-matter of investigation in the social sciences, both historical and theoretical.” 30 But right from the very start, he saw that this meant subjectivist economics was part of a wider discipline, the general theory of human action. Initially he thought the term ‘sociology’ was the most appropriate for this general discipline, although he used the term ‘praxeology’ as well. He also referred to “the science (or sciences) of human action”, and at least twice, simply to “the science of action.” 31

Then, some time after the beginning of 1933, following on from his criticism of

Max Weber’s view of economics, Mises saw that sociology had by then become an historical, not a theoretical discipline. He therefore felt it had been a “mistake” to use “the term, ‘sociology’, to designate the theory of human action.”

Thereafter he used only the term “praxeology” for the general study of human action under which subjectivist economics was subsumed.32 Thus Mises systematically developed a praxeological economics, an economics of human action, specifi cally for assisting historical investigation — that is, the investigation of the concrete things that people actually did. This discipline is clearly quite distinct from the neoclassical economics of the late twentieth century which follows after the positivist model of the natural sciences and is therefore pure theory: hermetically sealed off in its development from the content of the world of professional historians and their preoccupations and problems.

And so, to repeat, Mises, right from the outset, was concerned with forging analytical tools for the historian. This can be accomplished only from a thorough knowledge of the content of this empirical discipline and the actual problems involved in its practice. Mises’ theorising was solidly rooted in the specifi c analytical needs of an empirical activity: historical research. But before proceeding with the further development of the analytical tools needed to 152 Early Modern England | Sudha Shenoy

study human action, Mises did some house-cleaning of the framework he was extending. First, he made more explicit the failure of the classical economists to analyse the real actions of real human beings. Secondly, he eliminated certain left-over classical views from Menger’s and Bohm Bawerk’s analysis and so rendered their subjectivism more consistent.

Why the Classicals Failed

To begin with Mises’ criticism of the classicals: Here, it must be said that

Mises did acknowledge that subjectivism had absorbed much and gained the

“greatest benefi t from the intellectual heritage of classical economics”. This gain was particularly in areas of monetary theory, but also from the classicals’

comprehensive view of economics … “that brilliant achievement.” As well, their recognition of the division of labour had the most momentous consequences for the analysis of society. 33

But Mises also made explicit the nature and size of the gulf which separated the classical economists from “a universal, timeless understanding that would embrace all economic action.” Mises was very clear about why the classicals “could not succeed in this endeavour:” 34 they could not solve the paradox of value — they could only deal with exchange value, not with use value. 35

This meant “the classical doctrine” was incapable of “comprehending the most fundamental element of economics — consumption and the direct satisfaction of a want.” Classical theory could not accommodate “the act of consumption or the consumer’s expenditure of money.” And so “the classical economists were able to explain only the action of businessmen”, so that “whatever did not pass through a businessman’s calculations and account books was outside the orbit of classical economics.” Thus the classicals “were unable to comprehend any change in well-being that cannot be valued in money in the account books of the businessman.” For this reason “they regarded the attainment of the greatest monetary profi t possible as the goal of economic action.” Classical theory personifi ed business principles in the homo economicus — which left out everything else:

“with [this] scheme … classical economics comprehended only one side of man — the economic, materialistic side. It observed him only as a man engaged in business, not as a consumer of economic goods.”36

But concentration on the business side alone prevents the analysis of human action — i.e. the actions of everyone in their capacity as homo agens: the user of means to arrive at ends. Business conduct is “pertinently described” in the “oversimplifi ed formula”: buy cheap, sell dear. This leads to a — spurious — distinction between “economic and non-economic action”, so that Early Modern England | Sudha Shenoy 153

“business-like conduct [is] falsely termed economic or rational conduct” while

“conduct determined by other considerations than business [is] falsely termed uneconomic or irrational conduct.” But in fact everyone acts to achieve a variety of ends, so such a distinction is useless in grasping people’s actions: “this

… classifi cation does not make any sense if we apply it to the behaviour of the consumers” — i.e. “everybody”. With such erroneous distinctions the classical economists “removed economics from reality”. Economics “did not deal with real living beings, but with a phantom, ‘economic man’, a creature essentially diff erent from real man.” The homo economicus is one-sided, whereas in fact people have “various aims and desires.” So this construction is not based on “concrete historical data”. Being “fi ctitious”, it cannot represent the “complex phenomena of reality”. In other words, it is not an “ideal type” — which makes it useless for purposes of historical research. 37

Finally, the classical economists, because of their “objectivistic theory of value” and their concentration on the businessman and his accounts, considered that there were only two scarce factors, that had to be economised: labour and land (or natural resources. Both together produced the third classical factor, capital). Thus the classicals “could not observe that time too is economised.

An account for time does not appear in the businessman’s books”. They could not see that “action always distinguishes between present … and future goods”

38. Here Mises is clearly referring to Menger’s analysis of the investment chain and his recognition that the production process always involved the future (see below).

Classical Remains in Bohm-Bawerk and Menger

Moving on now to Mises’ removal of classical inconsistencies from Menger

(and Bohm-Bawerk): As Mises observes, “the transition from the classical to the [subjectivist] framework did not take place all at once, but gradually.”

Menger and Bohm-Bawerk had started from the classical system, and so even as they realised the subjective and historical nature of the phenomena to be analysed, they included in their writings “propositions and concepts carried over from the objective theory of value and therefore utterly incompatible with the subjectivism” of their “great fundamental ideas”. As “pioneers and trail— blazers”, they did not understand all the “ramifi cations” of their new departure (and were themselves misunderstood by others). Mises stresses that the inconsistencies lie in “details” and “elaboration” only; “there can be no doubt”

about the “basic principles” 39.

We may fi rst set out Mises’ objections to certain of Bohm-Bawerk’s statements on price formation and then go on to Mises’ criticism of some classical hangovers in Menger.

Mises is concerned with Bohm-Bawerk’s attempt to divide the analysis of price formation into two stages according to motivation. Mises quotes Bohm-Bawerk here, who says that it is fi rst assumed that everyone involved, is motivated only by the “desire to attain a direct gain in the transaction.” The result is then modifi ed by introducing the eff ects of “other motives” such as “habit, custom … generosity, comfort or convenience … etc”40. Mises emphasises that this is a classical diff erentiation and therefore quite inconsistent with subjectivist analysis: “Bohm-Bawerk’s distinction” is “a tenet taken over from the older, objective system of classical economics. It is not at all compatible with the system of subjective economics” 41. Mises asks, “What is that ‘direct gain in … exchange’ which Bohm-Bawerk speaks of ?”42 In paying more for pencils bought from an invalid ex-soldier, the purchaser achieves two ends simultaneously: charity and the acquisition of pencils. In wearing evening clothes (at the appropriate time) and in having them from a fashionable, more expensive tailor, a ‘society’ man follows the custom and opinion of his circle. Whether buying an easy chair, using taxis, hiring a maid, or shopping in a nearby but more expensive shop — the end achieved is the same in all cases: “comfort or convenience.” Thus the proposed distinction cannot hold. Mises sees in it an

“unsuccessful defense” intended to protect subjective price theory against a total rejection. He emphasises that this “dichotomy” in fact had no eff ect at all on Bohm-Bawerk’s price analysis 43.

Mises criticised Menger’s notion of “imaginary goods” on subjectivist grounds: these goods too (eg cosmetics; items used in idol-worship) were subjectively regarded as providing utility. Therefore they too were priced on a market; their prices could be explained in exactly the same way as with any other good (or service). As Mises emphasises, his criticism is grounded in the very subjectivism fi rst developed by Menger himself. Mises also objected to the

“psychologism and empiricism” which “still further weakened” Menger’s “pioneering [I]investigations.” Menger started there (says Mises) not from “subjectivist economics … but from the system, the methodology, and the logic of classical economics.” Although Mises does not spell out this objection, he clearly refers to certain very early passages in the Investigations, where Menger begins with “observation” and the teaching of “experience”. These lead us (says

Menger) to “perceive” that each economic phenomenon is not unique and singular; rather there are “empirical … types”. Amongst these we “observe, without much diffi culty” the recurrence of “relationships which we call typi-cal”. While Mises does not say so explicitly, it is immediately obvious that it Early Modern England | Sudha Shenoy 155

was precisely this “observation”/”experience” which he found impossible to accept as a foundation for theorising: on what basis were “economic” phenomena and relationships fi rst distinguished from other phenomena and then classifi ed together as “typical”? or, for that matter, set apart as “untypical”44?

The Study of Human Action

Mises’ answer to these questions built on, but also radically extended, the distinction which defi ned Menger’s Investigations: “between the historical sciences, directed toward phenomena in their particularity, and the theoretical sciences, which are directed toward … the universal character of phenomena.”

Mises recognised (as we saw earlier) that both were the two branches of the one fi eld of study: human action. His development of the theoretical branch

— dealing with the universal aspects of human action — meant a radical extension and systematisation of the subjectivism already developed by Menger: the recognition that the phenomena studied are subjective in nature and can only be apprehended “from the inside”, as Wieser put it 45.

Mises saw the “possibility” of such an analytical discipline of human action to be the “subject of the Methodensreit.” There, as against the rejection of such a discipline, Menger pointed out “the character and logical necessity of a theoretical science of social phenomena.” Mises recognised that Menger had developed this analytical approach from the very outset: fi rst in his Principles and then in his Investigations, Menger worked out how, from the actions of individuals pursuing their several goals, there emerged fi rst indirect exchange and then money. From this “praxeological theory of the origin of money”, Menger generalised his analysis to develop a broader theory of human action: he elucidated “the fundamental principles of praxeology and its methods of research”.

Thus Menger explained “social phenomena” as the “’unintended outcome … not deliberately designed or aimed at by specifi cally individual endeavours of the members of a society.’” With this direct quote (in translation) from Menger,

Mises makes it crystal-clear that he too has undertaken the same analytical task:

to trace the formation of social phenomena as the unintended and undesigned result of the actions of individuals 46.

And so Mises, on his own showing, made more explicit, organised and extended that general discipline of human action whose basic analytical elements Menger had developed. We may therefore set out certain key elements here; then we see, in somewhat greater detail, how Mises (and Hayek) built them into a more general framework for the study of both sides of human action.

1. Menger pointed to the crucial difference between theorising about social and natural phenomena: with the latter, the ultimate building-blocks

— “atoms” or “forces” — are “unknown causes” of what is actually observed.

Here “the theoretical social sciences have a great advantage over the … natural sciences”. With social phenomena, “the human individuals and their eff orts, the fi nal elements of our analysis, are of empirical nature” [Menger’s emphasis]. From these “empirical” — real — elements, “the more complex … phenomena evolve … according to defi nite principles” 47. In other words, social theory builds with the real elements that lie at the root of all socioeconomic phenomena. But only historical investigation can tell us what actual people actually did under actual circumstances. Thus the line between social and natural phenomena, as Wieser then observed, is the line between those happenings that we view — inescapably — from the inside and those that we can only view from the outside. Mises and Hayek built further on this distinction, taken from Wieser.

2. Menger consistently and systematically used the “economising individual” or “economising person” as his basic analytical unit throughout. As the translators of his Principles point out, Menger used the term “economising”

to refer solely to an activity undertaken by individuals — their “act of economising”, not their motives. He specifi cally did not mean by this term, “self— interest” or “the profi t motive”. Mises, of course, repeatedly and indeed vehemently insists that in studying the theory of human action, we abstract from the motives and actual content of whatever ends people pursue; we are concerned only with the logical implications of the fact that they seek to achieve ends (that can and do change) and use (what they regard at the moment as suitable) means to pursue these (changing) ends 48.

3. Menger was explicit that economic phenomena were formed out of the human pursuit of ends, using means to do so:

“… man, with his needs and his command of the means to satisfy them, is himself the point at which human economic life both begins and ends.”

Consistently with this, it is quite clear that by the term “good”, Menger meant the means used by human beings to achieve their goals. Thus in his defi - nition of a good, he says quite explicitly that to say something is a “good” is to refer to a relationship between it and human beings. When this relationship disappears, so does that thing’s “goods-character”. In other words, to say an item is a “good” is to say that at least one human being sees in it a means to an end.

When it is no longer seen thus, it ceases to be an object for economic analysis.

To characterise things as “higher-order” goods is to refer to the particular use to which people put these items, not to anything inherent in the latter. Again, Early Modern England | Sudha Shenoy 157

the analysis is of the human use of material means to achieve an end (or ends).

And Menger also assumes the point as routine: when people obtain information about available supplies, they seek “knowledge … of the means available to them for the attainment of desired ends” 49.

4. Menger realised that all human action is inescapably directed toward the future: “in planning all human activity directed to” satisfying needs, people aim to meet their estimated future requirements; how far they succeed determines how well their needs are actually met. “Without foresight”, it would be impossible to achieve this goal 50. Mises analysed much more extensively this unalterable time dimension of human action.

5. Menger also saw that as the investment chain was extended further and further, the entire production process became more and more subdivided amongst an ever-growing number of production units, each turning out only a small fragment of the whole. While people thus acted as the elements forming an overall economic order, they nevertheless remained ignorant of this reality

51. Hayek made this insight explicit and developed it much further; it is clearly a signifi cant — a key — aspect of human action.

We may now see how Mises incorporated all these insights into a systematisation of the study of people’s actions. After this fi rst overview, we take a second look at certain key points (Part II).

The Results of Historical Development

1. Mises recognised that those historical phenomena that required analytical investigation had all developed over long periods of time, long before it could be seen, and was seen, that they represented a fundamental problem for analysis as well. Only after these historical developments had occurred could a praxeological framework be formulated to comprehend them theoretically.

Mises saw that these social and economic formations are all fi rstly, the outcome of a long process of historical evolution — of gradual development over time.

Secondly, they are the unintended and unplanned joint outcome of the actions of innumerable human beings. Thus while Mises recognised that social formations grew historically, he also opposed the methodological collectivism of the

Younger German School

Amongst social phenomena, Mises referred specifi cally to law, moral values, social ties and economic activity — just as Menger does. Thus law has grown over long periods of time and has continued evolving:

“Law did not leap into life as something perfect and complete. For thousands of years it has grown and it is still growing”.

Therefore property too has evolved through time: “Property rights….are the outgrowth of an age-long evolution.” Along with Menger, Mises rejects the view that law came from explicit agreement, as a social compact. Mises further deplored

“Marxism’s professional revolutionaries, who…destroy values which the labour of centuries and decades has created.”

He saw that the “Bolshevists” [sic] aimed to “dissolve all traditional social ties, to destroy the social edifi ce built up through countless centuries…” Economic interaction too required long-term historical development: “Conscious and purposeful cooperation is the outcome of a long evolutionary process.”

So too, “the market economy is the product of a long historical process.” And again: “the emergence of interpersonal exchange was the result of a long evolution…” Similarly “indirect exchange” was an “evolution”. These historical processes brought about a total and fundamental transformation in the human condition and therefore occurred on the requisite time-scale: they “began when the human race emerged from the ranks of the other primates” and then evolved “from savagery to civilisation.” This involved a long development from autarky to worldwide exchange, and

“evolution from the economic self-suffi ciency of households, villages, districts, and countries to the world-embracing market system of thenineteenth century…” 52.

All human beings contribute in their actions to the emergence of these historically-produced phenomena: “Political, social and economic aff airs are the outcome of the cooperation of all people.” Mises agrees with Menger, that such historical developments are the composite and undesigned consequences of individuals’ activities:

“…the historical process is not designed by individuals. It is the composite outcome of the intentional actions of all individuals. No mancan plan history. All he can plan and try to put into eff ect is his own actions which, jointly with the actions of other men, constitute the historical process.”

Thus people “and their fathers” have “unwittingly created [market] society by their actions” over many generations. Private law is the foundation of social cooperation and of human civilisation, but both law and society are not just the unintended consequences of all individuals’ actions aimed at other ends, — the development of the legal and social order was not just unforeseen, it was unforeseeable:

“All this is the result of conscious willing and awareness of the aims willed. But this willing sees and wills only the most immediate and Early Modern England | Sudha Shenoy 159

direct result: of the remoter consequences it knows nothing and can know nothing. Men who create peace and standards of conduct are only concerned…for the needs of the coming hours, days, years;

that they are, at the same time, working to build a great structure like human society escapes their notice” 53.

Because historical formations such as law, society, and the market order have grown over such long periods, they can only be altered piecemeal:

“We are in all our endeavours the heirs of our fathers…our civilisation, the product of a long evolution, cannot be transformed at onestroke” 54.

Analytical Aspects of Historical Developments

Thus it was only after the division of labour and the market order had developed over centuries that their existence and orderliness could begin to be recognised and studied. In short, something systematic fi rst actually manifested itself in peoples’ actions, and in economic and social phenomena: so the study of the principles involved is a study which begins with the actual actions of people as their activities evolved and changed through history.

Initially, students of these phenomena had “isolated insights”, as into

Gresham’s Law. Mises points out that this

“was referred to by Aristophanes in the Frogs, and clearly enunciated by Nicolaus Oresmius (1364), and not until 1858 named after Sir Thomas Gresham by Macleod.”

But from this point “there was still a long way to go” before the “philosophers of the eighteenth century became aware of the interconnectedness of market phenomena”. Before the division of labour was recognised (says Mises)

even Kant struggled to explain the growth of society; he could only attribute it to the impulse of social cohesion overmastering the opposite impulse, to social separation. But once the principle of the division of labour was seen, social knowledge forged ahead, far beyond such non-explanations. Mises points to the “great feat” of the classical economists: their

“discovery that there prevails in…the sequence of market phenomena a regularity that can be compared to the regularity in the … sequence of natural events” 55.

Thus the “historical fact” is that a functioning market order fi rst appeared in the course of history and it was in analysing this pre-exiting historical phenomenon that there developed the systematic study of human action — the discipline of praxeology. And so, as Mises put it:

“The mental grasp and analysis of the problems present in a calculating market system were the starting point of economic thinking which fi nally led to praxeological cognition”.

Mises doubts whether economics “could have emerged” in a world of barter; and he agrees that, without the actual experience of indirect exchange, it might not have been possible to conceive of this type of action with “all its ramifi cations” 56.

Mises emphasises that, historically speaking, the development of praxeological theory only became possible after the development of the exchange order being thought about. But the historical data are ineradicably complex:

“in historical experience we can observe only complex phenomena” 57.

So in logical terms, the analytical tools needed have to be worked out beforehand; only then can the historical materials be untangled. The basis for this is the common thing which makes history distinct from natural phenomena: history is human action. This line of analysis is elaborated below.

A Totally New Perspective on Human Action

2. Mises recognises that since it is people’s actions that bring about the historical record, historians were the fi rst students of human action:

“It is in accounts of history that we find the earliest beginnings of knowledge in the sciences of human action.”

Historians of necessity had always relied — implicitly and explicitly — on some sort of general propositions regarding human action per se, in grasping and interpreting their facts. But they did not systematise their repeated references to such “regularities”; they did not try to “clarify these tacit supposi— tions by special analysis.” They never asked whether “these regularities” were

“extraneous” or “inherent in the very nature of human action.” Historians and philosophers saw in people’s actions only the observance or disregard of moral precepts: “With righteous men any utopia might be realised.” All this changed drastically in the eighteenth century, when systematic theoretical inquiry into social and economic phenomena began:

“The scattered and fragmentary insights of the historical and normative sciences themselves achieved scientifi c status only with the development of economics in the eighteenth century”.

Economics developed because of the “discovery” of an order “in the sequence and interdependence of market phenomena”. Thus a revolutionary new fi eld of study was established: the systematic analysis of “[h]uman Early Modern England | Sudha Shenoy 161

action and social cooperation.” In short, “economics opened to human science a domain previously inaccessible and never thought of ” 58.

It was now seen for the fi rst time that human actions — individual and cooperative — required dispassionate theoretical investigation. They could no longer be the objects of a “normative discipline” only. Thus praxeology sprang from the empirical investigations and conclusions of the philosophers and economists of the late eighteenth and early nineteenth century:

“The discoveries made by Hume, Smith, Ricardo, Bentham and many others may be regarded as constituting the historical beginning andfoundation of a truly scientifi c knowledge of society”.

The real world was found to contain something — manifested in human actions — which could not be explained by “logic, mathematics, psychology, physics, nor biology”. People “were compelled to recognise” an order “which they compared” with the natural order they were already familiar with 59.

From the Narrow Classicals to Universal Subjectivism

Mises underlines that the classical economists, because of their objective value theory, were unable to trace the market order they had discerned to its roots in the actions of individuals. So they were “forced…to restrict the scope of their science.” This new comprehension was thought to refer “only to a narrow segment of the total fi eld of human action, namely, to market phenomena.”

And so before the discovery of subjectivism, economic analysis was confi ned to material goods only:

“Until the late nineteenth century, political economy remained a science of the ‘economic’ aspects of human action, a theory of wealth and selfi shness.”

But the realisation that value was something subjectively attributed by human minds “converted the theory of market prices into a general theory of human choice.” In consequence, “modern subjectivist economics” has a far broader reach than the narrower preoccupations of the classicals:

“the general theory of choice and preference goes far beyond…the scope of economic problems as circumscribed by the economists from Cantil—lon, Hume, and Adam Smith down to John Stuart Mill. It is much morethan merely a theory of the ‘economic side’ of human endeavours and of man’s striving for…and improvement in his material well-being. It is the science of every kind of human action.”

Subjectivism is founded on the fact that individuals rank all their ends, material and non-material, on their value-scales, — ie for each individual, the one value-scale ranks all ends. This means that 162 Early Modern England | Sudha Shenoy

“Nothing that men aim at or want to avoid remains outside of this arrangement into a unique scale of graduation and preference”.

Thus both material and non-material values aff ect the demand for and supply of, all goods and services. Therefore the analysis now has to be of the general and universal category of human action: the use of means to achieve ends, in the most general sense, abstracting from the concrete context altogether. Exchange activity is now recognised to be only a part of a far wider, comprehensive range of human actions. Consistently with all the above, Mises said fl atly (twice) that the analysis of praxeology “was not a contribution to philosophy”; — in other words, it was an analysis of an aspect of reality 60.

In developing this analysis, Mises was acutely aware that he

“had drawn the appropriate praxeological conclusion from the scientifi c development that began during the eighteenth century with the discovery of regularity in market phenomena.”

But he also realised the extent to which he was breaking wholly new ground:

“For a long time I hesitated to present my investigations into epistemological problems to the public because I was aware that they wentfar beyond the fi eld of economics. In fact, we are dealing here with the opening of a new fi eld of epistemology and logic” 61.

In sum: Mises is centrally concerned in all his analytical work with the emergence and growth of the discipline of praxeology; the “economics” he refers to is always subjectivist economics — a branch, and only one branch, of this more comprehensive discipline, of which the other segment is history.

Organism and Organisation

3. Mises followed Menger in distinguishing between two kinds of social phenomena: the deliberately-organised and the unintentionally-developed.

But Mises goes further: while emphatically rejecting the “absurdity” of all biological metaphors, he recognises that in both social and biological life, there is life in a very real sense. Both social and biological entities manifested an organising principle which makes them all living organisms and therefore in fact something more than the sum of their parts:

“…when organisms are formed, something which did not exist before is created out of individuals. Vegetable and animal organisms are morethan conglomerations of single cells, and society is more than the sum of the individuals of which it is composed. We have not yet grasped the whole signifi cance of this fact” 62.

Mises feels that to understand the principle of life it is necessary to break with “the mechanical theory of the conservation of energy and of matter”, which cannot tell us how a new living entity is created out of its component parts. Here he feels the understanding of social life will have to lead ahead of biology 63. — As we shall see (below), Mises was the fi rst to recognise that key analytical ideas — evolution, the division of labour — were developed fi rst to explain social formations and only then used in biology, with a resulting transformation in that fi eld.

Mises compares the diff erence between an organisation and living social organism — society — to the difference between an artificial and a natural fl ower. The ordering principle of the one is hierarchy and command; of the other, interdependence: “Organisation is an association based on authority, organism is mutuality.” An organisation expresses the will and purpose of its organiser, but this no more creates a living social organism than a maker of artifi cial fl owers creates “a living rose”. So an organisation falls apart when its organising force is withdrawn. To convert the living organism, society, into an organisation means killing the living thing fi rst:

“To seek to organise society is just as crazy as it would be to tear a living plant to bits in order to make a new one out of the dead parts”.

Society is not only larger than any organisation it contains, its social forces are ineradicable. If any attempt is made to turn a living society into a deliberate organisation, social forces both limit and defeat this attempt. And so “The collectivist movements were…fore-doomed to failure” 64.

From Evolution to its Negation, Social Darwinism

In the recognition of the principle of unintentional growth, Mises sees the crucial breakthrough which made proper scientifi c explanation possible in all fi elds. Initially, people explained natural phenomena animistically, after the model of their own purposive actions, as in the making of an arrow. Then God or Nature was called in, but the explanation remained anthropomorphic. Only after this approach was dropped, could natural science progress. Similarly with social phenomena: at fi rst people regarded all social formations as deliberate organisations. Then, from the eighteenth century onwards, “Classical

Political Economy and its immediate precursors” realised that social and economic phenomena manifested not the hierarchy of command, but the organic principles of unintentional development — viz., evolution and the division of labour. Biology then adopted this explanation, thus eliminating animistic and hierarchical interpretations in its fi eld, and great progress followed 65. 164 Early Modern England | Sudha Shenoy

But society remained “so mysterious and incomprehensible a formation”

that the notion of a divine outside force persisted, far longer than with natural phenomena, to account for the “origin and nature” of society. The “last great expressions” of this approach are in “Kant’s Nature, which leads humanity towards a special aim, Hegel’s World Spirit, and the Darwinian Natural Selec-tion.” Then later, the explanatory principles that had passed from the study of society to that of biology, “reverted to Social Science” in the form of “that monstrosity, sociological Darwinism”. The latter “is unable to explain the phenomena of society”. In fact, this view is profoundly antisocial: because it “ends in a romantic glorifi cation of war and murder”, Social Darwinism is held by Mises to be “peculiarly responsible” for the ideological environment which led to the

First World War and the continuing social strife in the period after 66. In other words, Mises was constantly aware that ideas — whether inchoate, implicit or explicit — determine people’s actions; thus ideas determine whether the social bond amongst individuals is strengthened progressively or gradually weakened

(see below).

The Complexity of History

4. The socioeconomic formations that were recognised in the historical data by the classicals and Menger, are all historical developments. This means they are integral parts of a complex historical environment produced as human beings, infl uenced by a variety of ideas, values, etc, utilise various specifi c material means to achieve a variety of ends, both material and non-material. In other words, all historical contexts are the outcome of a complex of infl uences.

Thus “history is the record of human action”: it “deals with unique and unrepeatable events, with the irreversible fl ux of human aff airs”. Its “scope”

is “all the data of experience concerning human action.” This means that all historical developments are the joint and unique results of multiple causes; so such developments occur at a specifi c time and place:

“…history, that is, the description of a complex phenomenon that happened at a defi nite place on our globe at a defi nite date as the consequence of combined operations of a multitude of factors.”

Historical data are thus distinguished from natural data by belonging to a specifi c historical context:

“A historical event cannot be described without reference to the persons involved and the place and date of its occurrence. As far as a happening can be narrated without such a reference, it is not a historical event but a fact of the natural sciences” 67.

The complex and unique combinations of infl uences found in history cannot be used to test a theory; it is rather the other way about: independently— developed theories are needed to sort and organise the historical data:

“Every experience concerning human action is historical, ie an experience of complex phenomena, of changes produced by the joint operation of a multitude of factors. Such an experience…can neither verify nor falsify any theorem. It would remain an inexplicable puzzle of it could not be interpreted by dint of a theory that had been derived from other sources than historical experience”.

So the historian needs to use a wide variety of non-historical disciplines in his work, according to the problem under consideration. These disciplines would include logic, mathematics, the natural sciences and other specialisms according to topic:

“The historian must regard all other sciences as auxiliary to his own and must be as thoroughly familiar with as much of them as is required by the particular tasks he has set himself…Whoever writes a history of bridge-building will need a thorough knowledge of bridge-building;

whoever writes a history of strategy will need a thorough knowledge of strategy” 68.

Mises follows Menger in seeing that the various non-historical disciplines are “indispensable auxiliaries” for the historian’s work. But if theory is insuffi - cient for the problem at hand, or the historian selects the wrong theory or has an inadequate grasp of theory, “the result of [the historian’s] examination and analysis of the material will be vitiated” 69.

The Simple Data of the Natural Sciences

Mises contrasts such complex historical experience with the experience of the natural sciences, which he sees as data that can be ultimately reduced to and reproduced in, laboratory experiments, which reveal the numerical constants in these data. Initially, Mises thought scientifi c hypotheses were reached inductively and then verifi ed. Then he added the alternative of falsifi cation or disproof; and fi nally he referred only to falsifi cation. But he saw the laboratory experiment as the distinguishing feature of analysis in the natural sciences, and experimentally-established laboratory facts as the building-bricks of scientifi c hypotheses. Against this, he contrasted the complex historical phenomena studied by the sciences of human action. In other words, the data of the natural sciences could be broken down into relatively simple laboratory facts with numerical constants, whereas historical experience remained irreducibly complex70. 166 Early Modern England | Sudha Shenoy

Mises’ grasp of the philosophy and methodology of the natural sciences clearly lagged far behind the latest developments in that fi eld; but it does not follow that he could not, therefore, have a penetrating and comprehensive insight into the problems of studying human action. Mises’ distinction between the relative simplicity of the facts of the natural sciences and the inherent, ineradicable complexity of socioeconomic formations was developed much further by

Hayek (see below).

How Theory Shapes History

The common thread that makes history intelligible is that it is the actions of human beings:

“although unique and unrepeatable, historical events have one common feature: they are human action” 71.

The historian therefore needs the appropriate analytical tools to grasp this, the root cause of the reality he studies. Here Mises again rejects the anti-theoretical stance of the Historical School and the Institutionalists. He emphasises that it is impossible to simply register ‘facts’; any report or organisation of the historical data implies a theory. For human action, this means praxeology:

“The Historical School and the Institutionalists want to…occupy themselves merely with the registration of the data… But no statement concerning these data can be made without reference to a defi nite set ofeconomic theorems. When an institutionalist ascribes a defi nite event to a defi nite cause, eg. mass unemployment to the alleged defi ciencies of the capitalist mode of production, he resorts to an economic theorem… There is no such thing as a mere recording of unadulterated facts apart from any reference to theories. As soon as two events arerecorded together or integrated into a class of events, a theory is operative. The question whether there is any connection between them canonly be answered by a theory, ie. in the case of human action by praxeology” 72.

In their work historians implicitly and unavoidably use concepts concerning human action — the use of means to achieve ends. Ideas about human action are ineradicably embedded in our thinking and so our language:

“Theories about action are implicit in the very words we use in acting, and still more in these we use in speaking about action.”

Thus to use language is to use concepts, albeit untutored:

“the terms employed are themselves the outcome of defi nite theories held in commonsense thinking…a theory is already contained inthe very linguistic terms involved in every act of thought. To apply Early Modern England | Sudha Shenoy 167

language, with its words and concepts, to anything is at the same time to approach it with a theory.”

For many purposes, the theoretical concepts needed and used are relatively simple:

“The study of history always presupposes a measure of universally valid knowledge. This knowledge which constitutes the conceptualtool of the historian, may sometimes seem platitudinous”.

Uncomplicated general concepts are utilised in virtually every historical statement, but these concepts remain non-historical ie applicable across historical contexts. For example, even the

“simple sentence, ‘the defeated king found himself forced to conclude peace under unfavourable conditions’,” contains “simple and scarcely disputed theories, which by their very character, are non-scientifi c, but this does not change the fact that they are still theories, ie statements understood as universally valid” 72.

But the concepts must be held before historical research can be carried out:

“…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 defi nite conception of war and peacebefore one turns to the sources” 74.

In short, as mentioned before, although the development of the analytical tools to study human action came temporally — historically — after the historical growth of the socioeconomic phenomena that called for such analysis, nevertheless in logical terms, praxeological theory cannot be derived from the complex phenomena of history, but needs to be worked out independently and separately, as with all the other disciplines used in historical analysis. How this is possible is examined further below.

Since the historian perforce utilises theoretical concepts concerning human action, the choice is between the unexamined, untutored, everyday ideas found in commonsense thinking, or using conceptual tools that have been systematically worked out and examined:

“The only question is whether one wants to have recourse to causal explanations that have been elaborated and critically examined by scientifi c thought or to uncritical, popular, prescientifi c ‘dogmas’”.

Mises feels that history is too important a task to pursue with anything less than the best available theories of action, while dropping unexamined ideas:

“History cannot fulfi l its task if it does not employ the most precise logic. At every step of the way it must make use of universally valid 168 Early Modern England | Sudha Shenoy

concepts and propositions…it must, whether it wants to or not, theo—rise…it is obvious that nothing but the best theory is good enough for it. The historian is not warranted in uncritically accepting any concept or proposition from the stock of naive popular habits of thought.”

The historian should “subject all concepts and propositions to a sharp critical examination.” All ideas have to be thought through, questioned and examined for consistency, coherence, and to remove “unessential elements that imprecise reasoning may have mixed in with them.” In short, the historian has to either “practice theorising” or “accept theory where it is developed in a scientifi c way.” Thus the historian “in order more than ever to discharge” the

“proper tasks” of history, needs “the intellectual tools provided by the theory of human action.” Mises puts Sombart forward as a warning:

“He does not ask what exchange and price are. He unconcernedly employs these terms as everyday, unscientifi c usage presents them” 75.

Systematic thinking about human action begins with ordinary concepts, but these are refi ned and all their implications clearly thought through. This applies especially to the remote and less obvious consequences. These conceptual tools are worked into a coherent system which links certain implications together while separating others (again, see below). Mises points out that a proper economic history only became possible when classical economics produced a systematic analytical apparatus; before then, it had been possible only to compile memoranda, as with the history of trade. In short, economic history can be written “only because there is an economic theory capable of throwing light upon economic actions.” Without such a theory,

“reports concerning economic facts would be nothing more than a collection of unconnected data open to any arbitrary interpretation” 76.

The Scope of History

It should be mentioned that Mises regards a wide range of disciplines to have as their common object the actual doings of actual people — which is what he means by “history.” Thus history — the study of the actual content of human action — encompasses

“history proper, philology, ethnology, anthropology — as far as it is not a part of biology, and psychology as far as it is neither physiology nor epistemology nor philosophy. Economic history, descriptive economics, and economic statistics are, of course, history”.

It includes “descriptive sociology” which Early Modern England | Sudha Shenoy 169

“deals with those historical phenomena of human action which are not viewed in descriptive economics; it overlaps to some extent thefi eld [of ] ethnology and anthropology.”

General sociology too — as Max Weber developed it — is a branch of history, which “approaches historical experience from a more nearly universal viewpoint…” Linguistics is included “as far as it is neither logic nor the physiology of speech”. Thus history “embraces every aspect of human activities,” so it is possible to study the history of

“political and military action, ideas and philosophy,…economic activities…technology,…literature, art and science, [and] religion…mores and customs, and of many other realms of human life” 77.

The Role of ‘Understanding’

The various non-historical disciplines that the historian needs to use are auxiliaries only; they do not themselves “suffi ce for his task.” That is because the “historian’s genuine problem is always to interpret things as they happened.” But the non-historical disciplines cannot deal with them: “there always remains at the bottom of each of the historian’s problems something which resists analysis” by these other disciplines. The historian has to exercise a specifi c skill:

“it is these individual and unique characteristics of each event which are studied by … understanding.”

The historian can exercise understanding “because he is himself a human being.” Once again, the historian refi nes and systematises an activity which is part of every human being’s mental apparatus: “Understanding is not a … procedure peculiar to historians”. Rather, it is practiced by everyone:

“It is applied by everybody in daily intercourse with all his fellows. It is a technique employed in all inter-human relations. It is practised by children in the nursery…by businessmen in trade, by politicians and statesmen…”

But the historian “removes inconsistencies and contradictions” in his (or her) practice.

Mises is emphatic that “understanding” is not empathy or approval, nor is it “a free charter for nonsense”. To understand historically is to appreciate the uniqueness of the data and to assess the relevance of the action being studied, “ie its bearing upon the course of events.” Thus it involves historical judgment, of the relative importance of the various historical infl uences at work in the problem or issue being examined. Understanding (verstehen) does not mean justifi cation or emotional appreciation, as of an artwork.

The Analysis of Human Action: the Foundations

5. We now come to the theoretical side of human action: that aspect which cannot be grasped through historical study, including understanding, but which has to be comprehended through theoretical categories. The starting point for the development of praxeology is the recognition that the study of historical materials is only possible because all human beings have minds with the same logical structure. This does NOT mean that everyone thinks alike or that everyone is a rational, cool, calculator or that everyone has an identical psychological make up. It means that we can grasp people’s actions: — comprehend that they are using means to arrive at some end or other, not that people rationally sit down and consciously set out to do this. If people were not acting beings, with a similar mind structure, then it would be impossible to study them in diff erent historical contexts:

“If thinking and action were really conditioned by place, time, race, nationality, climate, class, etc., then it would be impossible for a German of the twentieth century to understand anything of the logic and action of a Greek of the age of Pericles” 80.

Clearly Mises is not saying that a Greek of the fi fth century BC is simply a twentieth-century German wearing an eccentric costume, nor is he saying that the world of a Periclean Greek is instantaneously accessible because everyone there is human too. Rather, Mises is moving on a much deeper, more fundamental level: underneath their vast historical diff erences, ancient Greek and twentieth-century German are human beings — and that is why it is possible to comprehend that both regard some ends as worth pursuing and others as worth sacrifi cing, with all the abstract, general implications that follow. The concrete content of these ends and of the implications of their pursuit, is of course vastly diff erent, but the subjective action is the same: acting on a scale of values. It is because people have the same abstract mental structure, that it is possible for a twentieth-century historian to comprehend and historically understand the historical context, Periclean Athens, — or indeed, any other historical context.

Mises was again tilting at the Historical School here: they deny that there are regularities in human action, independent “of place, time, race, or nationality.” But to prove this they

“would have had to show that the logical structure of human thinking and the categorical nature of human action change in the course of history and are diff erent for particular peoples, races, classes, etc” 81.

But the Historical School “could never demonstrate” 81 this and if they had, as Mises has just argued, they would have cut the ground out from under Early Modern England | Sudha Shenoy 171

their own feet: where there is no human mind involved, there the natural sciences have to come into play.

Mises went on to further develop the observation that the categories of human action are what makes human beings human: Suppose “a traveller from the Germany of ‘high capitalism’ [was] drive off his course” and fetched up on an island with tribal inhabitants. Initially their behaviour would be “incomprehensible and unintelligible” to him. But when he suddenly realised they were exchanging goods, he would have comprehended the meaning of their actions — even though up to then, he would have been “familiar only with the exchange [activities] of ‘high capitalism’.” Again Mises’ point is that such comprehension is of the subjective meaning common to all people of what are otherwise vastly diff erent activities in outward appearance: but this means that all peoples have the same abstract mental categories. This is what makes possible

“the comprehension of an event that otherwise cannot be grasped at all…” 82

Ethnography and the Study of Action

Mises examined ethnographic data to conclude that the diff erences displayed were in content of thought only — the underlying logical structure was the same in all cases:

“No facts provided by ethnology or history contradict the assertion that the logical structure of mind is uniform with all men of all races, ages, and countries.”

Thus in earliest times, agricultural cultivation was treated as a sacred or magical rite; only later was it realised that the methods involved were techni-cally valuable. But, as Mises points out, this merely says that “the technological notions of primitive ages were diff erent from ours.” Similarly, a “peasant eager to get a rich crop “may “perform magical rites,” go on pilgrimage, light a candle before a saint, or use “more and better fertiliser.” All these are action: using means to achieve ends; so “magic is in a broader sense a variety of technology.”

Mises reiterates that “action “ means only that “the performer believes…the means…will produce the desired eff ect.” Action does not mean using only a correct theory or improved technology 83.

Ethnological studies also demonstrate only that tribal peoples think about diff erent things from the “intellectual interests” of “a narrow circle of intellectually distinguished men” in other countries. Tribal peoples see “magical or mystical connections” where others see none, or fail to see links that others see

— but this is a diff erence in the “content of [their] reasoning”, not in its “logical structure”. It is reported of such peoples that they “stop short at [their]

earliest perceptions…and never reason if [they] can…avoid it”. Mises says 172 Early Modern England | Sudha Shenoy

“European and American educators sometimes report the same of their students”. He also says if these ethnologists had “looked about…among European economists and politicians,” they would never have attributed “the practice of never thinking matters out and never reasoning” to tribal peoples alone.

Again, it is said of such peoples their “conversation…turns only upon women, food and…crops.” Mises asks caustically, “What other subjects did many contemporaries and neighbours of Newton [and] Kant… prefer?” 84

What All Human Minds Have in Common

Mises brought out further the reality that everyone’s mind was of the same logical structure: We all manifest this reality in our daily actions: we act, and act successfully, on the principle that we are surrounded by fellow-humans, whose minds are similar in general structure to ours. (This does not mean ‘with identical mental contents’ or ‘psychologically identical’!!) Thus:

“everybody in his daily behaviour again and again bears witness to the immutability and universality of the categories of thought and action. He who addresses his fellow men, who wants to inform and convince them, who asks questions and answers other people’s questions, canproceed in this way only because he can appeal to something common to all men — namely, the logical structure of human reason” 85.

Everyone’s experience demonstrates that their fellow-humans also act — ie. use means to achieve ends:

“If we do not transcend the realm of reason and experience, we cannot help acknowledging that our fellow men act. We are not free to disregard this fact…Daily experience proves…convincingly that our fellow men are acting beings as we ourselves are.”

When we act on the assumption that our fellow humans are as human as we are, this practice turns out successfully

“It is beyond doubt that the practice of considering fellow men as beings who think and act as I…do has turned out well…”.

In research as in daily life, we fi nd we can successfully treat people as if they were humans like ourselves

“…it is beyond doubt that the principle according to which [I deal]

with every human being as if the other were a thinking and acting being like [myself ] has evidenced its usefulness both in mundane life and scientifi c research. It cannot be denied that it works” 87.

If it is postulated that people should be treated as if they were natural objects, then how would we get the same sort of empirical verifi cation of this hypothesis? Agreed, it is “impossible to provide conclusive evidence” that Early Modern England | Sudha Shenoy 173

“my logic and…the categories of my action” are those of every other human being. But it is a fact that “in addressing [our] fellow men [we presuppose]

… the inter-subjective validity of logic and thereby the reality of…[the] eminent human character” of everyone else. In short, we know about the fundamental category of action — using means to achieve ends — both through our own actions and through “understanding…other peoples’ conduct.” To act is to grasp the fact that others act as well: “Action implies understanding other men’s reactions.”

Subjective Categories Make the Reality

6. Mises here radically extends the subjectivism fi rst discerned by Menger.

As Menger was a pioneer, he saw only that the rank value that individuals attributed subjectively to various ends ultimately determined how much of which goods and services they would give up in exchange and also the quantities of the particular goods and services they would seek to obtain in exchange. Mises now realised that all social and economic phenomena are subjective in nature — ie., to say these phenomena are ultimately intelligible is to say there are human minds behind them. This means the intelligibility of these phenomena consists in the general meaning attributed to them by some human mind or minds:

“…all experience concerning human action is conditioned by the praxeological categories and becomes possible only through their application. If we had not in our minds the schemes provided bypraxeological reasoning, we should never be in a position to discern and grasp any action. We would perceive motions, but neither buyingnor selling, nor prices, wage rates, interest rates and so on. It is only through the utilisation of the praxeological scheme that we becomeable to have an experience concerning an act of buying and selling… Unaided by praxeological knowledge we would never learn aboutmedia of exchange. If we approach coins without such pre-existing knowledge, we would see in them only round plates of metal, nothing more. Experience concerning money requires familiarity with the praxeological category 89medium of exchange” .

Thus the logical categories that create meaning are part of our mental structure, they are not gained through experience, nor could they be obtained thus:

“What we know about the fundamental categories of action — action, economising, preferring, the relationship of means and ends, and everything else that…constitutes the system of human action — is not derived from experience. We conceive all this from within…a priori, withoutreference to any experience. Nor could experience lead anyone to the 174 Early Modern England | Sudha Shenoy

knowledge of these things if he did not comprehend them from within himself ” 90.

Mises emphasises that these mental categories are specifi cally human — they are not obtainable by other means:

“No special experience is needed … to comprehend these theorems, and no experience, however rich, could disclose them to a being who did not know a priori what human action is” 91.

Mises is particularly emphatic that to have logical categories in one’s mind does not mean that one is a rational, cool, calculating thinker:

“economics does not deal with an imaginary homo oeconomicus…but with homo agens as the really is, often weak, stupid, inconsiderate, and badly instructed.”

By mental categories, Mises means the specifically human capacity to acquire and use concepts; he is not saying that any particular concepts are somehow obtained through heredity

“The a priori categories are not innate ideas. What the normal…child inherits…are not any categories, ideas or concepts, but the humanmind that has the capacity to learn and to conceive ideas, the capacity to make its bearer behave as a human being, ie, to act” 93.

Thus experience requires a mind: “Experience is a mental act on the part of thinking and acting men.” So too, historical understanding is of human beings:

“understanding presupposes and implies the logical structure of the human mind with all the priori a categories” 94.

Mind — ie, action — separates humanity inexorably from all entities that lack such a mind:

“There is nothing in between a being driven exclusively by instincts and physiological impulses and a being that chooses ends and the means for the attainment of these ends” 95.

The gulf between acting and non-acting beings is unbridgeable:

“There is no evolution which would lead from non-action to action…

There is only acting and non-acting” 96.

Failing to act where action was possible expresses a choice: “Action is not only doing but no less omitting to do what possibly could be done”. Habitual behaviour is action since habits can be changed. The opposite of action, in other words, is an instinctive, involuntary reaction, where there is no mind operative. Thus action is peculiarly and specifi cally human:

“Thinking and acting are the specifi c human features of man. They are peculiar to all human beings. They are….the characteristic mark of man as man”.

Mises here generalises to all human activities, Adam Smith’s observation that exchange and property were specifi cally human traits, not found amongst animals.

Thus it is the human mind which projects subjective meaning onto physical objects or processes. When something is called a “means”, this refers to the meaning attributed by a human mind, not any physical characteristic of the object:

“…in this universe there exists only things. A thing becomes a means when human reason plans to employ it for … some end and human action really employs it for this purpose…It is of primary importance to realise that parts of the external world become means only through the operation of the human mind and its offshoot, human action.

External objects are … only phenomena of the physical universe and the subject matter of the natural sciences. It is human meaning and action which transform them into means. Praxeology does not deal with the external world, but with man’s conduct with regards to it…

Economics is not about things and tangible material objects; it is about men, their meanings and actions. Goods, commodities and wealth…are not elements of nature; they are elements of human meaning and conduct. He who wants to deal with them must not look to the external world; he must search for them in the meaning of acting men” 98.

Mises here extensively develops Menger’s point that “goods-character”

is not inherent in things, but expresses a relationship between people and the objects they consider useful. And so, as against behaviourism, Mises insists that actions have meaning:

“It is impossible to describe any human action if one does not refer to the meaning the actor sees in the stimulus as well as in the end his response is aiming at” 99.

Thus it is the human mind which creates the reality of human action. As

Mises says:

“to the obvious question, how a purely logical deduction from aprioristic principles can tell us anything about reality, we have to reply that both human thought and human action stem from the same root…they are both products of the human mind” 100.

Subjectivism Has Nothing To Do With Psychology

It should be obvious by now that this consistent subjectivism is analytical only: it has nothing whatsoever to do with psychology. Mises is again quite explicit and defi nite on this point. Psychology is concerned with the “internal events” that result in action; praxeology analyses action per se:

“Praxeology deals with choice and action and with their outcome.

Psychology deals with the internal processes determining the various choices in their concreteness…[Psychological] explanation has nothing to do with a branch of knowledge for which the concrete choices are data not needing further explanation or analysis. Not what a man chooses but that he chooses counts for praxeology” 101.

Psychological processes are entirely distinct from action:

“Economics is distinguished from psychology by the fact that it considers action alone and that the psychic events that have led to an action are without importance for it” 102.

Subjective value is erroneously linked to psychology; in fact the study of human action is a separate and independent fi eld:

“[Psychology] has no special relation to praxeology and economics.

The popular belief that modern subjective economics, the marginal utility school, is founded on or closely connected with ‘psychology’ is mistaken”.

Praxeology analyses action and its implications, not the preceding psychological happenings:

“The very act of valuing is a [psychological] phenomena. But proxe—ology and economics do not deal with the [psychological] aspects of valuation. Their theme is acting in accordance with the choices made by the actor” 103.

Mises sums up: “Economics begins [where] psychology leaves off .”

Mises thus recognises that while psychology may discuss the psychological infl uences on the concrete content of peoples’ choices, action itself — using means to achieve ends — is an entirely diff erent and distinct aspect of reality.

The historian investigates “what [actual, concrete] ends people aim at and what

[actual, concrete] means they apply…” 105 Such investigation requires insight into action per se; so the historian needs the appropriate analytical framework for this. In other words, psychology is clearly one of the disciplines the historian would need, according to the issue being studied. But as all history is human action, the historian would need praxeology for all his (or her) studies. Early Modern England | Sudha Shenoy 177

Human Action is Not Found in the Natural World

Thus the presence of human purpose makes off the social world from the natural world, investigated by the natural sciences:

“action is a category the natural sciences do not take into account…[I]n the orbit of natural events of the external world…there is no such thing as action…there is nothing that would suggest aiming at ends sought; there is no ascertainable purpose” 106.

Where there is no human mind and human action, there we fi nd natural phenomena: so “meaning” and “purpose” in historical investigation always refers to human meaning and purpose: “the ends sought by acting men in pursuit of their own designs” and the meaning attached to their actions by “the actors themselves and those aff ected by their actions” or by historians 107.

Action Is A Fact

7. Thus the fact that people act is something which is known to all humans because they are human: “As thinking and acting men, we grasp the concept of action”. Our common humanity gives us “a knowledge of what goes on within acting men”. But this knowledge is general and abstract only: we can see that people “wish to change their conditions” because some felt unease and that they attach meaning to their actions 108. Thus by beginning “with the act of choice”, catallactics starts from

“a fact whose existence can be established in a manner that admits of not doubt — a fact that every human being knows…because he himself acts…” 109.

And since the historian is a human being studying other human beings, he can also understand their actions, in all their uniqueness. Mises sums up with a quotation from Empedocles [c. 5th century BC]: “Knowledge is of like by like”.

II

The Great Society: Extending the Division of Labour

Now we take a somewhat more detailed look at the praxeological framework which Mises developed:- We re-examine some key points in a little more detail.

Mises sets out the central object to be analysed: “that great human society”, which covers “all nations” and embraces “all men in all of their activities”.

To clear the analytical decks, Mises emphasises that this Great Society is not any of the following:

1. God-given, and therefore mysterious and beyond analysis.

2. produced through a social instinct or urge — this is circular and therefore explains nothing,

3. the result of a social contract, rationally and deliberately entered upon,

4. an overarching and superhuman but anthropomorphic entity or being110.

Menger pointed out that the “fi nal elements” of social phenomena are acting individuals — ie facts already known, unlike in the natural sciences. Mises builds extensively and massively on this founding insight. It is impossible to deny (he says) that “collective wholes”, such as “nations, states…religious communities”, are “real factors” that determine the course of human events.

But such collectives are invisible, and manifestly no-one observes “society as a whole”. We have “direct cognition” only of individuals’ actions. Therefore,

“[e]verything social must in some way be recognisable in the action of the individual”, and “[e]very form of society is operative” there. Thus “[a] collective whole is a particular aspect of the actions of various individuals” and therefore a “real thing” infl uencing real-world happenings. The “evolution of reason, language” and of “social cooperation under the division of labour”, the emergence and growth of nations, churches and other collective entities — all are discernible only in what people actually do, and in changes in their actions. In sum: it is in and through the content of people’s actions and through changes in these actions, that social phenomena are constituted, change, and develop.

These social phenomena are perceived mentally, through appropriate analytical lenses, not physically with the eyes 111.

Mises asks the next logical question: what makes human society possible?

Why do humans not live in colonies like ants (for example)? Or as animals do in herds, quasi-‘family’ groups, or as solitary and self-suffi cient creatures? The answer (he says) lies in certain facts of the real world. Overwhelmingly the most important such fact is the greater productivity of the division of labour. This in turn rests on the wide variety in people’s abilities and in geographical conditions. Thus as people specialise and exchange, ie cooperate with one another, in however small a group, — they each gain, in terms of material outputs, services and/or leisure. That people are mentally capable of making these connections — between particular actions and returns — is another fact, equally fundamental to the maintenance and extension of the division of labour112.

Mises emphasises that when people act, their actions are not an automatic reflex or some other involuntary process. Ideas — mental acts — precede action:

“Before a man aids his fellows in cutting a tree, such cooperation must be thought out. Before an act of barter takes place, the idea of mutual exchange of goods and services must be conceived” 113.

In fact, of course, as Mises underlines, people act on custom and habit.

But such action is not immutable, as are one’s bodily processes (for example):

people act thus because it mostly never occurs to them to do otherwise; they can, and do on occasion, change a habit or custom or adopt a new one 114.

To sum up so far: Only acting human beings can perceive that as they alter their actions to provide material means to other people, the return obtained from these actions is likewise improved supplies of material means for their own ends — these “means” and “ends” as seen to be such in everyone’s own subjective reckoning, of course.

Thus as they mutually supply each other, people fi nd, and see, that from these actions their several ends are better achieved, and/or they obtain other ends (observes Mises) 115. Moreover, as the division of labour is extended and intensifi ed, certain consequences follow. Firstly, people’s skills improve continually, with continued specialisation. Secondly, more and more opportunities open up: for the use of diff erent kinds of tools; for these tools to be improved, and increased in quantity and range; and then for the introduction of machinery of various types 116. This machinery is then improved, diversifi ed, changed and developed, while being produced in larger and large quantities. Concomitantly, new occupations — new specialisms — open up. Thus people’s supplies of goods and services are increased in quantity, improved, and diversifi ed.

Population grows as infant mortality drops and life expectancy increases. But peaceful conditions are the sine qua non for specialisation and exchange to be maintained, let alone extended 117.

Thus it is only in and through extending the division of labour on a massive scale that people can gain such a massive improvement in the material means at their disposal, and so increase their numbers and life expectancy. Only human beings can so change their actions as to extend and intensify the division of labour.

This can proceed only step-by-step, of course; and only as people, at each step, fi rst perceive and take advantage of new possibilities, and then experience initially, at least some material or non-material improvement — as they regard it. Again, people are not automatons (says Mises); they may feel that the various changes in their actions and in other circumstances that would need to be made fi rst, far outweigh whatever new conditions would follow afterwards. In fact, of course, people have generally acted to extend and intensify the division of labour 118.

In other words, very few people have become ascetics. And, when the occasion has arisen, very few people have reduced their participation in specialisation and 180 Early Modern England | Sudha Shenoy

exchange, while increasing their own level of autarky. In fact people overwhelmingly have done the opposite — they have almost all acted to reduce autarky and to intensify specialisation and exchange, above the degree previously reached. Thus in people’s actions, the division of labour has been extended through the millennia, so that from the small face-to-face group, it grew eventually to cover the globe — this last from the late seventeenth century onwards. And so population was enabled to expand to its present level, in the later twentieth century.

This specialisation and exchange are mutuality and peaceful interdependence

— all participants indirectly but mutually assist each other to attain their several goals (says Mises). It will be seen that Mises has extended and amplifi ed Mandeville’s insights. Each can succeed only as everyone succeeds. As specialisation and exchange grow — as the division of labour becomes ever-more intensifi ed and extended — interdependence and mutuality become ever greater and ever tighter (not that anyone sees it that way). In sum: to participate in the division of labour is to enter into and maintain a “complex” of peaceful “mutual relations”, direct and indirect, with other human beings. This entire “totality of inter-human relations” is what underlies the term ‘society’. Thus the division of labour is social cooperation, the social tie par excellence:

“…it makes friends out of enemies, peace out of war, society out of individuals” 119.

People Are Social Beings

Mises points out that archaeological evidence, the earliest documents, and reports made about remote tribes all show that even at a very early date and even in social isolation, humanity appears as “already highly diff erentiated societal groups” 120, practising some degree of the division of labour. Mises fi rst published this observation in 1949 (in the fi rst edition of Human Action).

Since then, there has been considerable further archaeological work. This has brought out a major break and transition from around 35,000 B.P. into the

Upper Palaeolithic. In this period, certain items travel over much longer distances from their origins than previously — these goods include certain types of stone (for tools), diff erent kinds of shells, and beads (or tusks). Stone points are now hafted into wooden holders; there is evidence for woodworking and textile-making. Flutes and iconic fi gurines are also now made, as also some kinds of shelters121. — In other words, the division of labour, both within the face-to-face group and amongst such groups, had grown far beyond its previous levels.

Mises underlines the fact that reason, language and the division of labour are the quintessentially human attributes. (Here he follows Smith Early Modern England | Sudha Shenoy 181

and Ferguson). These features are social — ie inter-individual; so humans are human precisely because they are social beings, interacting, interdependent, and mutually assisting one another through specialisation and exchange. It is through the appearance of such human, ie inter-individual attributes that humans emerged from their non-human past (Mises points out)122. — As a human being, therefore, everyone is born into and acts within, a specifi c set of historical circumstances: “These circumstances are determined by all the ideas and events of the preceding ages as well as by those of his own age” 123. People are not abstract entities: they live as members of their families, of cultural and social groups. People follow various occupations, and certain religious, meta— physical, political, social ideas. By their actions, they manifest membership of a variety of social, political, religious and other groups — ie, they associate with one another for a variety of purposes. Thus people’s actions are directed by

“[i]nheritance and environment…They suggest to [them] both the ends and the means”, as also values and ideas. People infl uence one another in their thinking and acting, and some individuals link together more closely in this respect. This “tremendous power of consuetude” also determines “the course of events” 124.

But social change there is. Changes in customs, habits, ideas, and fashions always originate with one or a few individuals, and then spread as others accept these innovations and initiate them. Thus repetition and imitation are “fundamental factors in social evolution”. Changes in ideas are always responses to some pre-existing ideas. Such changes result in dropping some views and adding others to a given stock (observes Mises) 125.

Acting on the Rules of Social Cooperation

Now, society — the division of labour — is not an end in itself. Rather, it is

“the great means for the attainment of all ends” for practically everyone 126. —

Mises reiterates this insight more often perhaps than any other. — Mises also sees that the division of labour is therefore ends-independent:

“As social cooperation is for acting man a means…, no unanimity with regard to value judgements is required to make it work” 127.

Specialisation and exchange bring peace without agreement on ends:

“The market economy makes peaceful cooperation among people possible in spite of the fact that they disagree with regard to their valuejudgements”.

Society and division of labour develop only as people follow appropriate rules in their actions, ie they observe “the moral rules which the establishment, preservation and intensifi cation of social cooperation require”. Mises 182 Early Modern England | Sudha Shenoy

includes here the common law, of course, as the foundation of long-term economic development. He observes that changing business conditions lead to the development of “new branches of law” from “older business customs and practices”. Because society is a means, the moral and legal rules that create and preserve society are likewise means for the achievement of people’s ends.

To violate those “rules that make life within society possible” is to contribute to social disintegration, in however small a way, — and people can and do, of course “act antisocially”. Social bonds survive because people mostly do observe the “rules of conduct indispensable for life within society”. ‘Justice’

therefor can only refer to life lived with other humans: it “refers always to social cooperation”, and to some established set of rules. The only test of rules of conduct is how far they support and promote the division of labour — ie social cooperation amongst people. Thus “[s]ocial utility is the only standard of justice”. — It will be noted that Mises here adopts the Burkean standard — vide

Burke’s observations on the anti-Popery laws 129.

Evolution: From Society to Biology — and Back

Mises was the fi rst to observe that the principle of evolution was fi rst enunciated in the study of social phenomena and only later taken over by biology

(through Milne Edwards in 1827). Mises also emphasises that “evolution signifi es the process which led from past conditions to the present”. It is a “fatal error” (he says) to confuse “change with improvement and evolution with evolution toward higher forms of life”. When Darwin’s ideas returned to the social sciences, the origin of the idea of evolution was forgotten, and so there “arose that monstrosity, social Darwinism”. The latter doctrine cannot see that society is peaceful collaboration; ie “[e]very struggle suspends in eff ect the social community” 130.

The Rise and Fall of Civilisations

From the above we may see why Mises fi nds that “The history of mankind is the record of a progressive intensifi cation of the division of labour”. Thus there proceeds an “evolution from the economic self-suffi ciency of households, villages, districts, and countries, to the world-embracing market system of the nineteenth century…” Parallel with this economic interdependence, goes the development of law and peace: “The circle of those who combined to keep the peace amongst themselves was at fi rst very limited. The circle widened…through millennia, until the community of international law and the union of peace extended over the greatest part of humanity…” The various civilisations are the diff ering attempts made by diff erent groups to cope with the fundamental problem of Early Modern England | Sudha Shenoy 183

scarcity — the various ways people have found, for improving their conditions, and surviving better 131.

Mises underlines the fact that Western civilisation is a latecomer: “the early foundations of civilisation were laid by peoples of other races”. These older Eastern civilisations “developed philosophy and science long before the ancestors” of the Western Europeans “emerged from primitive barbarism”.

The Greeks built their astronomy and mathematics after learning from Eastern accomplishments. Later “a remarkable Muslim culture [fl ourished] in Persia, Mesopotamia and Spain. Up to the thirteenth century, Arabian learning”

equalled “the contemporary achievements of the West”. In the days when the ancient civilisations of China and India “excelled in philosophy and poetry”, they were also ahead of or equal to, “any of their contemporaries” in material achievements 132.

But these last “were followed by periods of material decay or…standstill”. The Roman Empire, too, reached “a high level of the division of labour”

and then “sank back into an almost money-less economy”. As the “economic order” became “less productive”, classical civilisation disintegrated: technology, art and science all decayed far below the high levels achieved once; many advanced skills and techniques could no longer be practised 133.

Thus Mises emphasises that history and the division of labour do not move in a straight line: “there was neither uniformity nor continuity in the succession of historical events”. In history “we can clearly discern periods of decay…when the division of labour has retrogressed”. Thus “social standstill and…retrogression are historical facts…” In addition, peace is not easily attained: “one of the determinants of the present state of mankind is that there were thousands of years of armed confl icts”. Predatory groups such as “Huns and Tatars, Vandals and Vikings, Normans and conquistadors [have] played an enormous part in history”. But such antisocial groups as could not be tamed, disappeared: “Those barbarian groups who did not substitute working for plundering disappeared from the historical scene” 134.

Mises stresses that in all advanced civilisations of both West and East, social cooperation is carried out through contracts, whether between individuals or families. Beyond this, he asks pertinently: “Why did the peoples of

Western Europe adjust themselves to the scarcity of all things on which human well-being depends in a way entirely diff erent” from the Eastern civilisations?

His answer: the Western Europeans developed “a legal and constitutional system which…provided the opportunity for large-scale capital accumulation”.

In sum, “the key stone of Western civilisation” is a secure “sphere of spontaneous action” for the individual 135.

Analysis and Historical Experience

To sum up so far: Mises analyses how the worldwide Great Society developed, in and through people’s actions. As people acted so as to manifest and extend the division of labour, they experienced the resulting material and non-material returns. As they (mostly) evaluated these returns to be worthy trying for, they developed and followed the legal and moral rules that extended and intensifi ed the division of labour. Thus people peacefully and unwittingly (in

Mises’ own words) 136 continued to extend and deeper the division of labour — in eff ect strengthening continually the bonds of interdependence and mutuality that are the outcome of specialisation and exchange. Mises emphasises that the

Great Society’s development could not be and was not, designed or planned in advance. Nor does he say anywhere that people are completely and fully aware of this process. Rather, they each know only what they undertake themselves;

and in pursuing their several ends, people utilise legal and moral rules, and the ties created through the division of labour, amongst their means. Thus Mises points to what is demonstrated in people’s activities: the actual situation which has resulted from their actions over the generations.

How is the division of labour extended? What is the inter-individual process involved? — One person or (more likely) a number of people gradually extend the division of labour, beyond the level previously attained. This means they have to consider fi rst, however vaguely and dimly, the possibility of changing their actions, however slightly. Others then copy this innovation — but here too there has to be at least a vague preliminary notion of trying out this change, however small it might be. Thus for the overwhelming bulk of people, participation in the division of labour, whatever its level, is a matter of doing what others do — of following custom and habit, and simply taking in the underlying ideas with very little thought, if any at all. In diff erent historical contexts, the division of labour has proceeded at very diff erent rates: it came to a virtual standstill in many situations; in others it decayed to a lower level; in some it progressed far beyond the levels ever reached elsewhere or at other times.

Thus the worldwide Great Society develops only as and when people’s ideas and actions conduce towards its evolution through history. This process cannot be automatic therefore, nor can it be deliberately planned or designed to follow an advance blueprint. The global division of labour — mutuality and interdependence — is an historical development. — It will be noted here that

Mises has systematically generalised Menger’s analysis of the gradual evolution of money and indirect exchange in people’s actions. Here too people were concerned with their own aims — to reach their goals more ‘economically’.

But in doing so, they also — in the same actions — gradually evolved a new usage, which spread through imitation and repetition (to use Mises’ phrase). Early Modern England | Sudha Shenoy 185

This new practice eventually facilitated the extension of the division of labour far beyond anything that could have been envisaged. This then massively facilitated the achievement of people’s aims — including new ones that no-one could even have imagined before they emerged.

Mises emphasises that the existence of the social phenomena being studied is learnt only from experience: He points out that “only experience can show whether the division of labour and language exist in fact”. He underlines that “the division of labour…is a datum”. So too “experience alone can tell us that diff erent linguistic systems are to be found…” 137. And again,

“It cannot be deduced a priori that between the totality constituted by humanity…on the one hand, and the individual, on the other, standthe totalities constituted by people, race, state, and linguistic community; this can be ascertained only through experience” 138.

And also:

“Only experience can teach us that there are lions and microbes and that their existence can present defi nite problems to acting man…”

In sum: “The existence of the external world is given through experience…” 139.

Thus the objects of study are the products of historical experience — they are the real actions of actual people. These actions are historical circumstances that can be specifi ed only by reference to time, place and people involved (this last does not mean ‘named and known persons’). In certain historical circumstances, people’s actions changed over time, so as to manifest certain socioeconomic formations — among them, the common law and the market order.

Only after these formations appeared in people’s actions — ie in history — could they fi rst be discerned tout court and then the analytical problems they presented be recognised:

“The mental grasp and analysis of the problems present in a calculating market system were the starting point of economic thinking whichfi nally led to general praxeological cognition” 140.

Historical phenomena are ‘complex’ — the compound outcome of many analytically — distinct and historical infl uences. Therefore their analysis has certain components, of necessity.

Mises begins from the insight that historical particulars can make sense only in terms of general concepts about action. These general categories cannot come from the historical materials themselves, since it is they that have to be arranged and elucidated. Rather, in organising these materials, historians utilise analytical categories and concepts that have been already developed:

“It is impossible to speak of war and peace unless one has a defi nite conception of war and peace before one turns to the historical sources” 141.

Even if new ideas have to be used, these are developed fi rst, then utilised in re-examining the historical materials. (Mises goes on) Many organising ideas are “simple and scarcely disputed theories”. These “by their very character, are non-scientifi c” but they remain general statements, covering all cases. Other ideas are “platitudinous” on the surface, but summarise key analytical concepts: a s in the term “land hunger” which contains in it — once the implicit reasoning has been made explicit — the law of diminishing returns. But with more complicated situations, as with German reparations in the interwar period, ordinary reasoning is inadequate: any links it might suggest between happenings will be logically unsustainable (Mises underlines). — Not that the historical materials will demonstrate this — they cannot, being complex phenomena awaiting analysis. Rather it is the reasons for bringing various developments together as part of the same historical phenomenon, that will turn out to be erroneous. This means the historian may also miss some other key chain of infl uence also operating at the same time and place (Mises points out) 142.

Thus historians defi nitely need systematically-developed concepts that enable them to go far beyond the obvious:

“…the historian needs all the knowledge provided by the other disciplines, by logic, mathematics, praxeology, and the natural sciences” 143.

Each of the disciplines can help to analyse only one aspect of the historical reality, ie a reality which consists of the specifi c actions of particular people in a particular context of time and place. All these (non-historical) disciplines, in other words, can be only auxiliary to the study of history, ie of various historical contexts. Thus if these theories are inadequate, or historians’ knowledge of them is insuffi cient, or historians select “an erroneous theory”, either through

“ignorance or…[because] it enjoys greater popularity”, their “examination and analysis of the material will be vitiated”. In short, Mises emphasises that historians need a sound grasp of all these disciplines before they investigate the historical materials, if their investigation is to be at all fruitful 144.

Now, historical research is humans inquiring systematically into the actions of other human beings, in a particular historical context. Historical study, Mises points out, is one example of Empedocles’ observation: “knowledge is of like by like” 145. — As human action itself is the element common to all actual historical actions of all people, these concrete historical actions are classifi able into one or other general category of action. In other words, all Early Modern England | Sudha Shenoy 187

concrete actions are specifi c instances of some general type of action. Therefore, the most important auxiliary discipline of all for historians, is the general abstract analysis of action — ‘praxeology’, in Mises’ term.

What does a general analysis of action involve? How is such a general analysis developed? As we shall see, the systematic analysis has to start from the ideas and perceptions already present in all human minds. These perceptions and ideas, common to all, are systematically refi ned and clarifi ed to provide a set of analytical tools which has been thoroughly worked out, to penetrate well beyond the obvious surface appearances of, and links amongst, people’s actions.

Action Is Subjective

Now, the objects of analysis — historical developments generally and, amongst these, social formations in particular — consist of the actual actions of real human beings. But “action” is not, and cannot be, a physical category:

it does not, and cannot, refer to the materiality of physical movements and of physical objects. Action becomes action only because a human minds is present: it is the meaning infused by a mind into physical motions and things that make them actions utilising means to achieve ends (I repeat here the quotation used earlier, for reinforcement):

“…all experience concerning human action is conditioned by the praxeological categories and becomes possible only through their application. If we had not in our mind the schemes provided bypraxeological reasoning, we should never be in a position to discern and to grasp any action. We would perceive motions, but neither buying nor selling, nor prices, wage rates, interest rates, and so on. It is only through the utilisation of the praxeological scheme that webecome able to have an experience concerning an act of buying and selling….Unaided by praxeological knowledge, we would never learn anything about media of exchange. If we approach coins without such pre-existing knowledge, we would see in them only round plates ofmetal, nothing more. Experience concerning money requires familiarity with the praxeological category 146medium of exchange” .

In every historical context there is a larger or smaller array of physical objects that people use as means. But these objects become means of various kinds only through people’s subjective appraisal. (Again I re-use a quotation, but now somewhat truncated):

“means are not in the given universe, in this universe there exist only things. A thing becomes a means when human reason plans to employit for the attainment of some end and human action really employs it 188 Early Modern England | Sudha Shenoy

for this purpose….It is of primary importance to realise that parts of the external world become means only through the operation of the human mind and its off shoot, human action. External objects are as such only phenomena of the physical universe and the subject matter of the natural sciences. It is human meaning and action which transform them into means. Praxeology does not deal with the external world, but with man’s conduct with regard to it” 147.

Mises cites the example of free and scarce goods. External — historical — experience provides the objects; the categories in which they are classifi ed and made meaningful are already present in human minds:

“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, which tells us what is a free and what is an economic [scarce] good” 148.

Concrete acts not experienced so far are rendered intelligible only because they can be classifi ed into some general meaningful category. Mises gives the example (which we’ve met before) of a traveller from the ‘high capitalism’

(Sombart’s phrase) of early twentieth-century Germany, who comes across a remote tribe. In due course he recognises that their “strange behaviour” 149 is really exchange of goods and services — even though he has hitherto experienced only the sort of exchange found with a far more extensive division of labour. Mises points out that it is the — pre-existing — general abstract category of exchange which makes this (mental) comprehension possible: the new circumstances are comprehended by being classifi ed ‘correctly’, no matter how greatly they diff er in concreto from the previous instances experienced. It must be emphasised here, as Mises does elsewhere, that this refers to a grasp of people’s actions — ie what they are doing, the subjective meaning of their actions.

This last is quite distinct and separate from, people’s emotions and psychology generally. An impulsive or random purchase, and one carefully considered, are all alike purchases, with identical ramifi cations and implications. Only analysis will bring out these eff ects and their extent; they are entirely separate and distinct from the emotional and psychological events that preceded the actions.

To continue: in the real world there are found only concrete historical actions — of particular people, undertaken at a specifi c time and place. The subjective meanings that classify actions, and that alone make these happenings intelligible — are found only in human minds; these fundamental categories cannot be learnt (a last re-quotation):

“What we know about the fundamental categories of acting — action, economising, preferring, the relationship of means and ends, andeverything else that…constitutes the system of human action — is not Early Modern England | Sudha Shenoy 189

derived from experience. We conceive all this from within….a priori, without reference to any experience. Nor could experience ever lead anyone to the knowledge of these things, if he did not comprehendthem from within himself ” 150.

In short, we think of, and act towards, other humans as if they too were acting beings:

“Our thinking about men and their conduct, and our conduct toward men and toward our surroundings in general, presuppose the category of action” 151.

Comprehension and Understanding: the Everyday Level

Thus people already have certain general ideas about action. But since people are concerned only with daily living, not the professional, systematic study of human action, these ideas are vague, inchoate, unrefi ned — in a word, these ideas have not been systematically thought through. Nevertheless, it is through these — somewhat murky — conceptual lenses that people, suffi ciently for their purpose, classify and categorise the actions of their fellow-humans, and so ‘comprehend’ the general aspects of these actions 152.

But besides their analytical side, actions also have a non-analytical aspect:

their concrete content, their specifi c and unique features. Precisely because the uniqueness of actual — historical — actions are beyond the reach of general analytical categories, the non-analytical aspects of people’s actions have to be and are, ‘understood’:

“…understanding is the mental grasp of something we are unable to bring under rules and explain through them” 153.

“understanding does not deal with the praxeological side of human action” [italics added] 154.

Thus ‘understanding’ — verstehen — is the grasp of the concrete, the specifi c, the particular, — as concrete, specifi c and particular, as itself and nothing else.

Mises points out that ‘understanding’ has two components: Firstly, “[i]t is the knowledge of the social environment in which a man lives and acts”. Thus

“[i]t is what everybody learns from intercourse with his fellows”. Therefore understanding “is a precipitate of historical experience”. But ‘understanding’

is also “an off shoot of introspection”. In putting both together, understanding gives insights that “[a]ll people are eager to get”, insights into “people’s valuations and plans” — ie into the 155content of people’s actions . Mises emphasises that, because of this, every human being practices ‘understanding’, of necessity, from infancy onwards:

“It is a technique employed in all inter-human relations. It is practiced by children…by businessmen…by politicians and statesmen…” 156.

In short, “[i]n observing the conditions of his environment, everybody is an historian” 157.

To sum up: in their everyday interaction with each other, people already:

i. ‘comprehend’ their fellow-humans’ actions in some fashion — ie classify and categories these actions, using some sort of general concepts, abstract concepts common to all human beings;

ii. ‘understand’ what their fellow-humans are doing — ie people apprehend the unique content of these actions, the specific value-judgements involved, the particular aims desired.

Comprehension: the Professional Level

For purposes of systematic analysis, these everyday perceptions and ideas, as commonly-held, can only be a starting-point, of course. That is because the ordinary “daily thinking of everyone” accepts ideas uncritically; it contains “prejudices and misunderstandings of all kinds, fallacies and errors…”

Clearly “scientifi c reasoning” has to “go further”, pushing the analysis as far as it will go; it has to build on solid foundations. Mises points out how the general analysis of human action is built up: Everyday ideas about action are analysed, defi ned precisely, all their implications are brought out, and they are

“purg[ed]…of all the unessential[sic] elements that imprecise reasoning may have mixed in…” Thus “the procedures applied by everybody” in their daily interaction with fellow-humans, are systematised and clarifi ed, to then become

“methods of scientifi c inquiry” 158.

The Demarcation of Action from Non-action

Analytically speaking, this means that the area under study has to be clearly demarcated. In other words, the fi eld of action has to be clearly distinguished from that of non-action. Thus the critical distinction is between “a being that chooses ends and the means for the attainment of those ends” and “a being driven exclusively by instincts and physiological impulses”. The chasm is unbridgeable: “There are no transitory stages between action and non-action”.

A number of implications follow — implications that clarify and sharpen the boundary between action and instinctive/ physiological processes: a. This means that: “The opposite of action is not irrational behaviour” [italics in original], but rather that which “cannot be controlled by…volition” — viz.,

“self-acting impulses, instincts, physiological processes. Or, in other words, Early Modern England | Sudha Shenoy 191

the opposite of action is whatever requires to be studied through the natural sciences of physiology, biology, neurology, etc. b. It also follows that “wherever the conditions for human interference are present”, there “to refrain from interfering” also “determine[s] the course of events”. Thus in all situations where it was known that action could have had some infl uence on the outcome, there the failure to act is a matter of volition (if there is coercion, then obviously the volition is that of the coercer). In such situations, therefore, not-acting has to be classifi ed — for analytical purposes — as a form of action: because it also helps to bring about the outcome. c. It further follows that: “He who acts under an emotional impulse also acts”- ie the consequences and ramifi cations are attached to the act which is undertaken; these results appear regardless of the presence or absence of emotions surrounding the action. E.g. whether a purchase or sale is deliberate or impulsive, all the same consequences follow, independent of the emotion involved. — Analytically, it is these interrelated consequences and ramifi cations that historians have to know, in order to discern the hidden, less obvious links amongst people’s actions. d. The analysis of action has to abstract from the content of ends, and the motives behind actions 159 — because analysis is concerned with action as an abstract, general characteristic. Action is using means to achieve ends, so in abstracto,

“action involving the exchange of material goods against immate—rial goods diff ers in no signifi cant respect from action involving the exchange of material goods alone” 160.

In all instances, there is “both taking and renunciation”; the diff erence is in the concrete content of what is actually aimed at and what actually sacrifi ced, not in the abstract nature of the action itself. The conservative farmer who sticks to old, tried-and-true methods, and the aristocratic landowner who refuses to use his coat-of-arms in diff erentiating the products of his estate — both act 161: they give up that which they value less for that which they value more. Both sacrifi ce money income to retain non-material values; tradition in both cases, and family dignity additionally, with the landowner. Both actions aff ect the allocation of material resources. Thus, for analytical purposes, the term “end”, means ‘whatever people aim at — whether material or non-material’; it does not mean only material values, “expressed in money”. Indeed,

Mises points out that any attempt to distinguish analytically between “economic” and “non-economic” ends is “ridiculous” 162. — To vary an example which he uses: To buy special clothing for a religious ritual and to purchase gaudy clothes for a grand night out — are both alike the use of means to achieve ends. Both alike represent the foregoing of other ends considered worth sacrifi cing. Therefore, both have the same abstract general consequences; it is the 192 Early Modern England | Sudha Shenoy

factual content which diff ers. (The pipeline network is the same, but diff erent materials are sent through under diff erent circumstances).

So too unsuccessful or mistaken actions still use means and aim at ends:

“the concept of action does not imply that the action is guided by a correct theory…and that it attains the end aimed at. It only implies that the performer of the action believes that the means applied will produce the desired eff ect” 163.

(A knowledge of how the pipeline network operates is still essential, whether the materials sent through are sent in error or not, or to the wrong destination). Thus because there have been, and still are, people who believe its effi 164 cacy, “[m]agic is in a broader sense a variety of technology” .

In short, praxeology’s “subject matter is erring man”. And because action is subjective, therefore:

“An end is everything which men aim at. A means is everything which acting men consider as such” 165.

e. Mises points out that even with those individuals regarded as mentally and emotionally disordered, it can be seen that they use means to pursue ends

— except that, in the eyes of those “who consider [themselves] normal and sane”, the means selected are “contrary to purpose” and “the reasoning determining [the] choice of ends [is] nonsensical” 166.

Mises also stresses that there remain puzzles still in animal and plant behaviour: “animals and even plants react in a quasi-purposive way; while the

“instinctive behaviour of animals…raises questions which nobody can answer satisfactorily”. But these issues are quite separate and distinct from the analysis of human action: the use of means to attain ends, with all the general implications following 167.

f. Anything which is not a concrete, historical action of some person, is part of the natural world 168. Thus the category of action also clearly demarcates the social world — the fi eld of praxeological analysis and historical study

— from the natural world, studied through the natural sciences. And so Mises analytically separates non-action: instinctual behaviour, responses to stimuli, refl ex actions — from human actions: which are volition, the use of means to achieve ends. The former, to repeat, are in the sphere of the natural sciences, such as neurology, physiology, biology, etc. The specifi c area of action is demarcated and covered by the analytical categories developed for comprehending the analytical aspects of the various concrete historical actions of actual human beings.

Everyday Ideas and Analytical Concepts

We may note here the diff erences between the everyday sense of two terms, and the analytical demarcation which Mises identifi es with the same terms.

In ordinary usage, ‘rational’ means ‘cold, calculating, controlled, emotion— less, bloodless’; while ‘conscious’, as an adjective, means ‘deliberate, carefully— considered, fully aware’. The opposite of both, in everyday use, is: ‘emotional, impulsive, careless, unconsidered, unaware’, etc. For Mises, on the other hand, the terms ‘rational’, ‘conscious action’, are used in opposition to: ‘instinctive/ refl exive behaviour’, ‘involuntary bodily processes’.

This demarcation serves for analytical purposes only, it has no practical function. — In daily life, it does matter whether people are impulsive and scatter-brained, or have some mental or emotional disorder, or whether, on the contrary, they seem to be reasonably sane, and they are careful, cool and reticent.

It also makes a diff erence whether people are greedy, selfi sh and materialistic, or abstinent, selfl ess and high-minded, and whether they succeed in achieving their objectives or not. Similarly, doing nothing is, for everyday purposes, the opposite of being active. All this is because, in our ordinary aff airs, we deal and live with the concrete content of our own and other people’s actions.

But analysis has to distinguish between the abstract, general aspects of people’s actions, and the concrete, historical content of those same actions. Thus

Mises is concerned to separate out — mentally — the analytical side of people’s actions from all these other aspects. From here the analysis can proceed, step-by-step, to unfold all the general, abstract relationships and interconnections amongst actions, bringing out the less immediate, less obvious, more distant links and results. This process builds up the general categories into which actual, historical actions can be fi tted.

Praxeology: The General Analysis of Action

That is, what does the general analysis of human action involve? How are these general categories arrived at?

a. Mises points out that praxeology “does not deal in vague terms with human action in general…” Rather it “begins its investigation from the individual action” — ie from a “concrete action which a defi nite man has performed at a defi nite time and place”. This act is thought through — not as an historical circumstance of time and place, but as a particular instance of a general category: the investigator studies “what is necessary and universal in its performance”, ie its abstract, general aspect. Thus “the starting point of praxeology is…refl ection about the essence of action” 169. This last is that 194 Early Modern England | Sudha Shenoy

which is common to all actual historical actions, the category of action itself, stripped of all concrete historical content. — It is absolutely essential to remember this is what follows. The general analysis of action, it cannot be repeated too often, analyses only one aspect of people’s real actions.

All historical actions have in common the one subjective meaning: they are all instances of people acting — using means to achieve ends. That is why all concrete actions fall logically into the one, the most general, category — that of action per se. But action in abstracto itself has further subjective attributes: which means there are further general aspects of historical actions to be brought out. These general abstract features do not proclaim themselves:

analysis is required, to make explicit and to spell out fully all that is implicit, and contained in the abstract, general characteristic, ‘action’. When these implicit attributes — the further implications of the category of action — are worked through, they form a set of additional abstract, general meanings to be ascertained in particular historical actions — meanings that are found there because all these actions ultimately have the general subjective meaning, ‘action’. So historical actions can be further classifi ed into additional categories, according to which subjective implication(s) of action they manifest. And where these abstract subjective attributes are linked together, there the historian has pointers to links in people’s actual actions.

b. Now in logical terms, and for purposes of analysis only, the general classifying categories precede the particular items to be classifi ed. That is, one must fi rst have some set of categories in mind, before asking: which category does this item fi t into? Hence Mises points out:

“…the category of action is logically antecedent to any concrete act” [italics added] 170.

This category is the broadest of all; it therefore contains further sub-categories — ie abstract aspects of concrete acts:

“The very category or concept of action comprehends the concepts of means and ends, of preferring and putting aside, viz., of valuing, of success and failure, of profi t and loss, of costs” 171.

“In dealing with every action we encounter [these] fundamental concepts…” 172.

Thinking through the implications brings out a systematic set of interrelated classifi cations, to help categorise actual historical actions:

“As thinking and acting men, we grasp the concept of action. In grasping this concept, we simultaneously grasp the closely correlated concepts of value, wealth, exchange, profi t, and cost. They are all necessarily implied in the concept of action and together with them the Early Modern England | Sudha Shenoy 195

concepts of valuing, scale of value and importance, scarcity and abundance, advantage and disadvantage, success, profi t, and loss. The logical unfolding of all these concepts and categories in systematic deriva—tion from the fundamental concept of action and the demonstration of the necessary relations among them constitutes the fi rst task of our science” 173.

The further implications of action include the categories of autarky, barter, indirect exchange and money. Mises underlines that it is from historical study that the concrete historical actions to be classifi ed are obtained:

“whether or not [these conditions] are present in a particular case can be shown by experience only” 174.

In other words, it is not the actual content of people’s actions which is being studied here — but the categories into which they fi t.

c. Mises is adamant that praxeology is strictly the analysis of human action only; praxeology is not simply an exercise in deduction from some selected axiom:

“The starting-point of praxeology is not a choice of axioms and a decision about methods of procedure…”[italics added] 175.

He is emphatic that any theorem purporting to relate to action must be solidly anchored in the fundamental category of abstract human action, through a chain of faultless reasoning; otherwise, it is just a pronouncement in a vacuum:

“Praxeology…draws its strength from the starting-point of, its deductions,…the category of action. No economic theorem can be considered sound that is not solidly fastened upon this foundation by an irre—futable chain of reasoning. A statement proclaimed without such a connection is arbitrary and fl oats in mid air” 176.

Mises’ point is clear: selecting an axiom and deducing conclusions from it is just an intellectual exercise. In opposition to this, praxeology is demarcated by the reality of its content and aim: the content is (the study of) the general, abstract aspect of the social reality; the aim is the deeper analysis and comprehension of this aspect. Thus in both content and aim, praxeology is one thing;

the building of intellectual castles in the air, is another.

The implications of action in abstracto — the various classifi cations of historical actions — are made explicit through deduction from the abstract fact that people use means to achieve ends. Mises points out that deduction does tell us something more than hitherto:

“cognition from purely deductive reasoning…opens for our mind access to previously barred spheres”. It “render[s] manifest and obvious what was hidden and unknown before” 177.

Thus the quantity theory, for example, provides knowledge which becomes available only after systematic inquiry; this knowledge has been very hardly won:

“in the concept of money all the theorems of monetary theory are already implied. The quantity theory does not add to our knowledgeanything which is not virtually contained in the concept of money. It transforms, develops, unfolds[;]…However, nobody would deny the cognitive value of the quantity theory. To a mind not enlightenedby economic reasoning it remains unknown. A long line of abortive attempts to solve the problems…shows that it was certainly not easy to attain the present state of knowledge” 178.

Since action is real, Mises characterises the implications — when cor-rectly and faultlessly drawn — as “perfectly certain and incontestable”. However, mistakes are inevitable and inquiries may be misled 179. Hence, Mises is emphatic that all analysis has to be grounded on the bedrock of action:

“[m]an is not fallible…[h]e can never be absolutely certain…that what he considers as certain truth is not error. All that man can dois submit all his theories again and again to the most critical re-examination. This means for the economist to trace back all theorems to their unquestionable and certain ultimate basis, the category of humanaction, and to test by the most careful scrutiny all assumptions and inferences leading from this basis to the theorem under examination…this procedure is [not] a guarantee against error. But it is undoubtedlythe most eff ective method of avoiding error” 180.

Thus Mises makes it crystal-clear that he is concerned only with the general abstract aspects of historical actions. Hence, it is also clear that he is not saying anything about any philosophical position on the search for absolute truth. Indeed, he says bluntly in the very fi rst sentence of his last work: “This essay is not a contribution to philosophy”. He also points out that… “philosophers…have ignored the sciences of human action. Their contributions have been useless for praxeology” 181.

d. To recognise that people’s actions in general have meaning, is to take a step away from everyday perceptions of action, in the direction of an analytical comprehension. To proceed down this path is to develop a systematic analysis of action, such as historical study needs. Mises emphasises (as mentioned before) that historians, being human, use general ideas about action to organise their research, whether they realise this or not: like Early Modern England | Sudha Shenoy 197

“M. Jourdain [who] was astonished to learn that what he had always been speaking was prose” 182.

In sum: Three sorts of ideas are available to professional students of people’s historical actions. 1. Everyday, unexamined, unrefi ned, unclarifi ed, uncritically-accepted perceptions, not developed for purposes of systematic analysis. 2. Popular and widely-accepted ideas, also immediately obvious, but which can be shown on systematic examination, to be “logically untenable”

and “contradictory” 183. 3. Systematically-elaborated categories of human action, not necessarily obvious, as they serve to bring out precisely what is not manifest, and requires extensive further thought.

As mentioned previously, in many cases the interconnections and relationships amongst historical developments are manifest. But where such links do not appear at once, or where further analysis would show that the visible links are in fact misleading, there the kinds of ideas about human action that historians use, crucially shape the picture drawn. This may then be incomplete, distorted, or defective in some other way. These problems are not visible; they appear when the general ideas used are brought to the surface and examined

184. The object of praxeological analysis is, as before, to help bring out relationships that would be otherwise hidden.

e. Praxeology is not, of course, the study of history; praxeology is auxiliary only. Therefore its abstract analysis “does not convey to us the full knowledge of reality” Praxeological “concepts and theorems” are “not in themselves… the totality of factual knowledge about all things”. Analysis provides only the

“mental tools opening the approach to a complete grasp of reality” 185.

‘Understanding’: the Specifi c Tool of History

The historical reality consists, of course, of unique historical circumstances: the particular actions of particular people at specifi c times and places, actions that make up various unique combinations and complexes of historical circumstances. Investigation of this historical reality requires therefore a thorough and critical knowledge of the sources — the residues left behind by human action. These residues are variously archaeological, geographical, doc— umentary, literary, architectural, industrial, artefactual, statistical, etc, according to the context being studied. It is through these residues that historians learn what people actually did and thought.

The analytical disciplines can help to elucidate only the analytical aspects of these actions, of course. As Mises states, analysis is “indispensable”, but in itself it “do[es] not make it possible to answer those questions” the historian

“has to deal with” 186. After the analysis is fi nished, historians still have to 198 Early Modern England | Sudha Shenoy

‘understand’ the uniqueness of the actions and circumstances they are studying

(he points out). Thus ‘understanding’ is the historian’s specifi c skill — it

“is precisely the method that the historical sciences…employ in dealing with the unique, the non-repeatable, that is…the simply historical” 187.

Historians can ‘understand’ because they are themselves human beings.

Mises is emphatic that ‘understanding’ is a “scientifi c grasp” of actions — it is decidedly neither approval nor empathy:

“To understand an individual case does not mean to justify or to excuse it”.

“Empathy (Einfühlung) and understanding are two radically diff erent attitudes” 188.

Empathy is emotional, as in the “aesthetic appreciation” of a work of art.

Understanding places it in its historical context. Once the analytical disciplines have reached their limit, understanding takes over. When historians learn about a “foreign milieu” through the study of “special sources”, they practice ‘understanding’. Economic history “above all” requires ‘understanding’ 189.

Finally, ‘understanding’ tries to estimate the relative signifi cance of the various infl uences and factors acting on and in a particular complex of historical circumstances. Historians may agree on the facts, as found in the sources, and in their general understanding of a case, but disagree about the ‘relevance’ of the individual components at work. Thus “[t]he fullness of reality can be mentally mastered only by…resorting both to” praxeological comprehension and historical understanding, as well as “the teachings of the natural sciences” 190.

Mises has the highest regard for historical study: it is both practical and enlightening: “…history is not a useless pastime but a study of the utmost practical importance”. It makes us “understand the situation in which [we have] to act” 191.

And it further:

“opens the mind toward an understanding of human nature and destiny. It increases wisdom. It is the very essence of…a liberal education”192.

Mises sets high standards for the historian — detachment, impartiality and truth-seeking:

“History…looks upon events with the eyes of an unaffected observer”193.

“A historian must fi rst of all aim at cognition. He must free himself from any partiality” 194.

“The freedom of the historian is limited by his endeavour to provide a satisfactory explanation of reality. His guiding star must be the searchfor truth” 195.

Elton and Loyn on Historical Investigation

It is well worth comparing what Mises says with the observations of two senior and highly-respected historians: Prof Sir Geoff rey Elton and Prof H.R

Loyn.

Elton notes that people’s intentions and actions are what produce historical evidence:

“…all evaluation of all historical evidence must start from one basic question: how and with what end in mind did this come into existence?” 196.

People’s actions create the materials that historians examine:

“…the bulk of our evidence…is produced by people doing things”197.

Historical sources are the residues of people’s actions:

“…the true sources [of history]…are all the deposits of past human action…in all its forms” 198.

“History deals with “the extant deposits of human experience (action and thought)…” 199.

Elton agrees that the historian’s humanity does play a role in studying other human beings:

“…I accept that being human gives one a better chance to understand other humans than being in-, sub-, or superhuman would do” 200.

Elton emphasises that history is an expert discipline in its own right:

“the historian…is not a philosopher, scientist of imaginative artist but simply an historian working by the rules and standards of his own craft”201.

Prof H.R. Loyn also insists that history is in fact a highly technical discipline, which aims at getting as close to the historical truth as possible:

“…this discipline is more exacting and more technical than often appears to be the case…The techniques involved in the framing of proper questions,…the collection and assessment of historical evidence, above all in the subtle relationship between evidence and the propriety of the question, are complex and learnt only through hard experience…The techniques required in the writing of history…are equally complex…bound to absolute ideas relating to the 200 Early Modern England | Sudha Shenoy

critical handling of evidence,…the possibility of achieving satisfactory answers to historical questions, and above all to the possibility ofachieving something approaching historical truth” 202.

It will be seen that Mises’ work complements the appraisals made by these leading historians. Mises articulates historians’ practice, and systematically expounds both the analytics and the non-analytical aspects involved. Thus

Mises has developed, extensively and thoroughly, both of Menger’s observations: theory deals with certain aspects of all phenomena; history deals with all aspects of certain phenomena.

The Economic System

We saw above (Chap 3) that Menger, using the term, ‘the national economy’, identifi es an economic formation which is not an economy at all. Rather, economies proper (fi rms, households, etc) are the elements that form this larger order through their interactions. In other words, Menger sees that individual

‘economies’ — production and consumption units — integrate themselves into an overall formation which includes all such units. He is nowhere concerned with single, isolated ‘markets’ — ie groups of businessmen dealing in a single, isolated commodity or service.

Mises too recognises this overall economic formation — which he describes rather than names. He too nowhere deals with ‘markets’ — single detached groups of businessmen buying and selling a single detached product.

He consistently analyses the all-inclusive market order and the comprehensive price structure — as all-embracing formations, the outcome of the participation of all people engaging in the division of labour. For this reason he is emphatic that equilibrium is an “imaginary state”; it is “hypothetical” and a “purely imaginary construction”; it is “unreal” and “self-contradictory”. The assumption of “stationary economic conditions” is an “expedient…not an attempt to describe reality”. In reality there is constant change: “In life everything is continually in fl ux” 203. With real-world circumstances, equilibrium can never be reached:

“In the world of reality there is no stationary state, for the conditions under which economic activity takes place are subject to perpetualalterations…beyond human capacity to limit” 204.

The “evenly-rotating economy” requires a world which is “perfectly rigid and immutable”. Therefore, it can be achieved only in a lifeless world:

“this tendency [towards an ERE] can never attain its goal…in a universe which is living and not dead” .

In short, people’s actions produce real prices, not equilibrium prices: Early Modern England | Sudha Shenoy 201

“The activities of…entrepreneurs or of any other actors on the economic scene are not guided by…any such things as equilibrium prices and the evenly rotating economy…entrepreneurs take into account anticipated future prices, not fi nal prices or equilibrium prices” 206.

In opposition to equilibrium and the ERE, the market order actually manifests itself in people’s actions, and binds them together:

“The market process is the adjustment of the…actions of the various members of the market society to the requirements of mutual cooperation” 207.

Because the market order is human action, it is not mechanistic:

“There is nothing automatic or mechanical in the operation of the market” 208.

As the division of labour is extended in people’s actions, the market process appears there; market phenomena, such as prices, are thus the composite outcome of the actions of all participants in the exchange process, compound refl ections of their valuations:

“The market is not…a thing, or a collective entity. The market is a process, actuated by the interplay of the actions of the various individuals cooperating under the division of labour. The forces determining the — continually changing — state of the market are the value judgements of these individuals and their actions as directed by these value judgements. The state of the market at any instant is the price structure, ie the totality of the exchange ratios or established by the interaction of those eager to buy and…to sell. There is nothing inhumane or mystical…The market process is entirely resultant of human actions. Every market phenomenon can be traced back to defi nite choices of the members of the market society” 209.

Mises insists on:

“the fact that prices are not a product of the activities of a special group of people, but the result of an interplay of all members of the market society” 210.

Although prices refl ect in composite the several valuations of all participants in the market process, this cannot be obvious, of course, to single individuals, taken in isolation. To such individuals, it seems plain that prices are simply given — their own actions can have no infl uence:

“[Prices] are social phenomena as they are brought about by the interplay of the valuations of all individuals participating in the operation of the market. Each individual, in buying or not buying and in selling or not selling, contributes his share to the formation of the market price. But the larger the market is, the smaller is the weight of each individual’s 202 Early Modern England | Sudha Shenoy

contribution. Thus the structure of market prices appears to the individual as a datum to which he must adjust his own conduct” 211.

A range of ‘economic’ phenomena are the complex outcome of the interactions of all people in the market process. But again for each individual in isolation, these phenomena appear to be quite external to their own actions:

“conditions of work…are, like the height of wage rates itself,…commodity prices, and…articles produced for mass consumption, theproduct of the interaction of innumerable people participating in the social process of the market. They are…mass phenomena which are…little subject to modifi cation on the part of a single individual” .

The one integrated process of interaction amongst people achieves three outcomes simultaneously: (i) the relative price structure; (ii) the allocation of resources to the production of the diff erent fi nal outputs; (iii) the incomes of the various participants:

“The pricing process is a social process. It is consummated by an interaction of all members of the society. All collaborate and cooperate, each in the particular role he has chosen…in the framework of thedivision of labour. Competing in cooperation and cooperating in competition, all people are instrumental in bringing about the result, viz.,the price structure of the market, the allocation of the factors of production to the various lines of want-satisfaction, and the determination of the share of each individual. These three…are diff erent aspects ofone indivisible phenomenon which our…scrutiny separates into three parts. In the market process they are accomplished 213uno actu” .

Thus prices are not self-contained, isolated units:

“It would be absurd to look upon a defi nite price as if it were an isolated object in itself…In this collection of things considered valuable by…acting men, each particle’s place is interrelated with those of allother particles. What is called a price is always a relationship within an integrated system…the composite eff ect of human relations” 214.

Thus only interactions amongst individuals can yield prices:

“Prices are market phenomena. They are generated by the market process and are the pith of the market economy. There is no such thing as prices outside the market. Prices cannot be constructed syntheti-cally…They are the resultant of a certain constellation of market data, of actions and reactions of the members of a market society” 215.

To sum up, in Mises’ words:

“The market is a social body; it is the foremost social body. The market phenomena are social phenomena” 216.

Therefore, Mises repeatedly emphasises “the general interconnection of market phenomena” 217. This is in-built in human action:

“an inexorable interconnectedness of phenomena is present…in the fi eld of human action as such…” 218.

Fundamental economic issues are only seen when the interconnections amongst activities are realised:

“Economics does not allow of any breaking up into special branches. It invariably deals with the interconnectedness of all the phenomena of action. The catallactic problems cannot become visible if one deals with each branch of production separately” 219.

The analyst must remember the economic system is in fact a seamless web; it is only analytically — mentally — that it has to be broken up for better comprehension:

“The market process is…indivisible. It is an indissoluble intertwine—ment of actions and reactions, of moves and counter-moves…the insuffi ciency of our mental abilities enjoins upon us the necessity of dividing it into parts and analysing each…separately. In resorting to such artifi cial cleavages we must never forget that the seemingly auton—omous existence of these parts is an imaginary makeshift of our minds. They are only parts…they cannot even be thought of as existing outside the structure of which they are parts” 220.

The economist has to place every issue within the economic system as a whole:

“The economist must never be a specialist. In dealing with any problem he must always fi x his glance upon the whole system” 221.

‘Competition’ and the Role of Businessmen

Consistent with his concentration on analysing the market order, Mises discerns an inter-individual process diff used throughout this “system of mutual cooperation”; this general process he terms ‘competition’. It has three main aspects. Firstly, it solves the problem of selecting people to fulfi l the various productive functions found in this system:

“Where there is social cooperation, then some variety of selection must be applied” 222.

Combativeness is the opposite of ‘competition’. This process discovers the people most suited to each job to be performed:

“competitors aim at excellence and prominence in accomplishments…The function of competition is to assign to every member of a social system that position in which he can best serve the whole of 204 Early Modern England | Sudha Shenoy

society and all its members. It is a method of selecting the most able man for each performance” 223.

In the system of widespread division of labour this cannot mean everyone has a “guaranteed right” to “choose…the place in…the division of labour he likes best” 224. Job openings, and success in performing any job, both depend on ultimately producing final products that are purchased by consumers, ie people in their aspect as fi nal buyers. As the market process is continual change, jobs follow inexorably:

“None of these [consumer] decisions is made once and for all; they are revocable every day. The selective process never stops. It goeson adjusting the social apparatus of production to the changes…It reviews again and again its previous decisions and forces everybody to submit to a new examination of his case. There is no security and no such thing as a right to preserve any position acquired in the past” 225.

‘Competition’ is also the process which solves the problem of discovering and fi lling consumer requirements. This cannot be done through mindless copying of successful businessmen:

“competition does not mean that anybody can prosper by simply imitating what other people do. It means the opportunity to serve the consumers in a better or cheaper way…to fi ll the most urgent of the unsatisfi ed wants of the consumers or to purvey to them at a cheaper price than their old purveyors…” 226.

‘Competition’ requires that the newcomer can attempt all this

“without being restrained by privileges guaranteed to those whose vested interests the innovation hurts” 227.

Since consumers purchase a range of fi nal products, and since all chains of production ultimately yield fi nal outputs, ‘competition’ is the other side of scarcity and is therefore all-pervasive:

“In the world-embracing public sale called the market…[e]ach entrepreneur represents a diff erent aspect of…consumers’ wants, either a diff erent commodity or another way of producing the same commodity. The competition among… entrepreneurs is ultimately a competition among the various possibilities open to men to remove their uneasiness as far as possible by the acquisition of consumers’ goods…

The competition between…entrepreneurs refl ects the prices of consumers’ goods in the formation of…prices of…factors of production.

It refl ects in the external world the confl ict which the inexorable scarcity of…factors of production brings about in the soul of each individual” 228.

Scarcity inescapably limits the numbers who can enter any single line of production:

“…competition is always restricted by the inexorable scarcity of…goods and services. Even in the absence of institutional barriers…to restrict the number of those competing, the state of aff airs is never such as to enable everyone to compete in all sectors of the market. In each sector only comparatively small groups can engage in competition” 229.

If existing capacity in a line of production can meet demand, then scarce resources are wasted in building more capacity in that line:

“If the existing plants are suffi cient, it would be wasteful to invest more capital in the same industry” 230.

Scarcity therefore pushes investment into those lines that ultimately “fi ll the most urgent among the as yet unsatisfi ed needs of the consumers” 231.

And so, since productive resources are always scarce, all goods have to

‘compete’ to maintain their relative position:

“There is always catallactic competition on the market…every commodity competes with all other commodities” 232.

From all the above it follows that producers who were successful in the past, if they wish to maintain the value of their investments, have to limit the range of new alternatives off ered by other producers to people as consumers:

“The rich, the owners of…already operating plants, have no particular…interest in free competition. They are opposed to confi scation and appropriation of their fortunes, but their vested interests are…in favour of measures preventing newcomers from challenging their position” 233.

In sum:

“It is precisely the fact that the market does not respect vested interests that makes the people concerned ask for government interference” 234.

Finally, Mises is explicit that the market process takes people as they really are; it is not necessary to posit they are perfect beings:

“It must be emphasised…that the market is peopled by men who are not omniscient and have only a more or less defective knowledge of prevailing conditions” 235.

It is now clear that the functioning of the market process cannot occupy the same dimension as neoclassical notions of perfect competition, perfect markets, Pareto-optimality, et hoc genus omne. Once again, Mises is analysing an aspect of the historical reality, ie of people’s actual actions.

It is also now crystal-clear that business behaviour cannot explain the emergence and functioning of the market order. What ties the latter together is the production of a range of fi nal outputs in the face of a scarcity of resources

(since, to repeat, all production chains eventually turn out fi nal goods and services). Mises denies explicitly that ‘economics’ — the study of human action in abstracto — is concerned with business activities. As he puts the view which he then opposes:

“A popular opinion considers economics as the science of business transactions…The businessman is the doer of things about which the economist merely talks and writes. Hence, a businessman has…a better founded and more realistic knowledge, inside information, aboutthe problems of economics…” 236

Mises goes on: “However, economics is not specifi cally about business…”

Human action deals with everyone’s conduct; therefore ‘economics’ covers

“all market phenomena”. The latter are the outcome of everyone’s participation: “The economist…deals with matters that are present and operative in every man” 237. So it follows that

“[t]he businessman is, in his capacity as a businessman, not more closely related to or involved in the process that produces market phenomena than anybody else” [italics added] 238.

Mises points out that businessmen and union offi cials are considered to have superior economic insight, because of their status: “it is assumed…the trade union offi cial and the entrepreneur are qualifi ed by…their offi ce alone”

to explain and decide economic questions. But the analysis of the market order

(Mises goes on) “requires a process of thought” which can “comprehend the general interconnection of economic phenomena”. Without this, one gets bogged down in the details, in “the particular and the accidental”; one cannot see “the general and the essential”. So far as businessmen and union offi cials go, Mises does not mince his words: they “enjoy a spurious prestige which should at all costs be destroyed…It is time these amateurs were unmasked”

239.

Prices, Quantities and Statistics are Complex Historical Facts

We now come to the question: What role do statistical and price data and other quantities of the historical reality, play in the study of human action?

In the historical reality, people utilise various quantities of various real goods and other products. People’s — historical — actions thus establish specifi c exchange ratios for those particular things, as we saw above. These prices and quantities are actual prices and actual specifi c quantities of specifi c real Early Modern England | Sudha Shenoy 207

goods and services, exchanged by particular people at a particular time and place, ie they are historical data. In the historical reality, there are only such specifi c concrete exchanges; taken together, they form the price structure:

“A market price is a real historical phenomenon, the quantitative ratio a which at a defi nite place and…date two individuals exchanged defi -nite quantities of two defi nite goods…It is ultimately determined by the value judgements of the individuals involved. It is not derived from the general price structure…What is called the price structureis an abstract notion derived from a multiplicity of individual concrete prices. The market does not generate prices of land or motorcarsin general nor wage rates in general, but prices for a certain piece of land and for a certain car and wage rates for a performance of a certainkind” 240.

Not only prices but all quantitative magnitudes are particular features of a particular historical environment:

“All measurable magnitudes that the sciences of human action encounter are quantities of the environment in which man lives and acts. Theyare historical facts…” 241.

The one-way historical flow encompasses prices and other quantities along with its other components:

“The prices of the market are historical facts expressive of a state of aff airs that prevailed at a defi nite instant of the irreversible historical process” 242.

Because actual prices and quantities are among the concrete contents of human action, they can provide local information only:

“In the field of human action all quantitatively determined magnitudes…do not convey any knowledge…beyond the specifi c historical constellation that generated them” 243.

So statistics too are historical materials — the outcome of what particular people did or what happened to them, in a particular historical context, ie at a specifi c time and place. These historical data too are numerical in character: “Statistics provides numerical information about historical facts” 244.

Being historical, these materials are concrete and specifi c to a particular context: “Statistical fi gures relating to economic events…tell us what happened in a non-repeatable historical case” 245. Statistical sources complement other historical sources in providing the facts of a particular historical situation. Historians have to know and utilise both kinds of data:

“Statistics is one of the resources of historical research. There are in the fi eld of human action certain occurrences and events characteristic 208 Early Modern England | Sudha Shenoy

features of which can be described in numerical terms. Thus eg the impact of a defi nite doctrine upon the minds of people does not permit of a numerical expression. Its “quantity” can be ascertained onlyby the method of…understanding of the historical disciplines. But the number of people who lost their lives in struggles to arrange, by means of wars, revolutions and assassinations, social conditions in agreementwith a defi nite doctrine can be precisely determined in fi gures if all the documentation…is available” 246.

Numerical constants in the natural world are in direct contrast to statistical data, which are “limited to certain geographical areas and historical periods”247:

“Whatever can be established [from statistical investigations] has only historical signifi cance, whereas the ascertainment of the specifi c gravity of diff erent substances, for example, has universal validity” 248.

Prices and other quantities embody perpetually changing historical circumstances, not fi xed physical features:

“exchange ratios…are permanently fl uctuating. There is nothing constant and invariable in them…They are not facts in the sense in whicha physicist calls the establishment of the weight of a quantity of copper a fact. They are historical events, expressive of what happened once at a defi nite instant and under defi nite circumstances”249.

It is not certain that the same exchange ratio may appear again, but if it does, then the question is: do the same circumstances still prevail? Or have they recurred once more? Or is this ratio —

“the outcome of the interplay of a very diff erent constellation of price—determining factors”? 250

In sum: prices and quantities are historical circumstances, the outcome of concrete human actions, whether these actions are past or yet to come: “A price is necessarily a historical fact either of the past or of the future” 251. We may now see why Mises says:

“Statistics is a method for the presentation of historical facts concerning prices and other relevant data of human action. It is not economics…The statistics of prices is economic history” 252.

We may remind ourselves that by ‘economics’ Mises means the analytical study of human action, — the other side of this coin is the study of concrete human action, ie history. — Now, actual prices, quantities and statistics are specifi c to the historical circumstances that produced them. These circumstances, including their quantitative side, change as people change the content of their actions — ie the concrete means used and/or the concrete ends pursued. But Early Modern England | Sudha Shenoy 209

to analyse human action, the categories and classifi cations utilised have to be empty of all concrete historical content, leaving only the abstract, general meaning. Thus these general categories are not quantitative; rather, the historical data classifi ed include quantitative materials.

It should now be clear that when Mises contrasts quantitative historical materials with natural measurements and constants, he is not setting apart — in neoclassical terms — the exact measurements of the natural sciences from the mere approximations and estimates that are the most the social sciences can aspire to. Rather, he points to a fundamental divide between the natural world and the social world: “In the orbit of natural events…there is no such thing as action” 253. It follows that the natural sciences cannot analyse that which does not exist in their world: “Action is a category that the natural sciences do not take into account” 254.

To extend this line of reasoning: as natural scientists do not study human action professionally, they naturally have no knowledge of the historical nature of the social reality. Therefore, neither do philosophers of science, neoclassical economists or philosophers of economics. And so for neoclassicals, date and place are merely identifying marks to distinguish one quantitative data-set from another. From the historian’s standpoint we may add: from the mid-nineteenth century onwards, two great historical developments occurred, that were the pre-conditions for neoclassical economics to become a (self-styled)

science. First, there was the dramatic and continuing success of the natural sciences. Then there was the outstanding expansion and development of global economic activity, as well as in the US. The result was the generation of vast amounts of quantitative materials — millions upon millions of goods and commodities of all types and grades, and therefore equal millions of prices and quantities and statistics of all kinds. Naturally neoclassical economics put the two together — quantitative techniques and quantitative data, exactly as the sciences did. So now neoclassical economics can, at a minimum, aspire to follow the hard sciences. As the latter do not know human action, the distinction between the analytics of action and concrete action, history, is either incomprehensible or verbal quibbling. Therefore, it is the same for the neoclassicals.

Capital Goods and Capital Accumulation

Since Mises is providing analytical tools to help comprehend people’s real activities — their actual use of real means to pursue actual ends, Mises cannot see ‘capital’ as a lump of plasticine:

“There is no such thing as an abstract or ideal capital that exists apart from concrete capital goods…capital is always embodied in defi nite 210 Early Modern England | Sudha Shenoy

capital goods and is aff ected by everything that happens…to them”

255.

New capital likewise consists in concrete goods:

“The additional capital is already in the very moment of its coming into existence embodied in concrete capital goods” 256.

a. Mises’ analysis of capital goods follows Menger. Mises too points out that goods are classifi ed according to the actual rise to which people put them:

“The same goods can be looked upon as capital goods or as consumers’ goods”

257. If a quantity of fi nal goods is used to sustain workers while they fi nish a project, then these fi nal outputs are in fact capital goods.

Following Menger, Mises too divides “[e]conomic goods” into “orders”

according to the way they are used “to satisfy human wants”. Goods that do so directly, without “[depending] on the cooperation of other economic goods”

are “consumers’ goods or goods of the fi rst order”. Other “[m]eans…can satisfy wants only indirectly when complemented by the cooperation of other goods”. Such means are “producers’ goods or factors of production or goods of a remoter or higher order”. A capital good, in “cooperation [with] complementary producers’ goods”, turns out either a fi nal output, or another capital good which then has to “[combine] with other producers’ goods [to] fi nally bring about a consumers’ good” 258. Thus Mises too recognises that capital goods have to form capital combinations in order to produce anything at all.

With Menger, Mises too sees that capital goods can be classifi ed according to their ‘distance’ from the fi nal outputs they contribute to producing:

“It is possible to think of…producers’ goods as arranged in orders according to their proximity to the consumers’ good for whose production they can be used” 259.

Just as Menger does, Mises too sees in people’s subjective valuations the moving spirit of capital accumulation, but he develops this insight much further. —

Once people have satisfi ed those wants they regard as immediately most urgent, they wish to provide for later periods in the future (Mises begins). Such provision, in other words, is an end which (some) people wish to pursue. Now looking beyond the immediate instant, people value consumption in the nearer future more highly than in later periods. If they did not, they would be eternally postponing consumption: since every ‘day’ they are faced with the same choice: consumption in a nearer or a some later instant of time 260. In short, people have some particular future in mind, for which they wish to provide:

“Action is not concerned with the future in general but with a defi nite and limited fraction of the future” 261.

Diff erent people have diff erent ideas about the ‘nearer’ future for which they wish to start making provision ‘today’. Many, like the grasshopper, are content to let tomorrow look after itself. Others are concerned with the next few weeks, months, years; still others prepare for their descendants. Everyone strikes their own balance, which of course changes as circumstances and valuations change. In short: people’s varied valuations of ‘future’ consumption, and the various time-periods they severally aim at, determine the overall extent to which they allocate their resources for this purpose: “What restricts the amount of saving and investment is time preference” 262.

Mises is emphatic that selection of some level and type of ‘future’ consumption is a choice exactly in line with the selection of various types and quantities of fi nal outputs for ‘current’ consumption. Both sets of choices are valuations made in the context of an irremediable scarcity; both kinds represent the use of means to achieve particular ends. There is nothing psychological here: no over-estimation (of the ‘present’), no under-estimation (of the ‘future’) — people simply make some choice about utilising their scarce means to obtain certain ends — in certain later time periods:

“…psychology can never determine the validity of a praxeological theorem” 263.

b . Production processes take various periods of time to yield fi nal outputs.

‘Lengthier’ processes yield i more outputs, ii new outputs that cannot be produced in ‘shorter’ processes iii enable provision to be made further into the future.

With ‘shorter’ processes, the opposite is the case. All production processes utilise such capital goods as have been already produced, together with current inputs. It is the composite aims of savers with respect to i the periods of future provision and therefore the production time taken, and ii the durability of the fi nal goods produced, that determine a how the existing capital investments are used in what sorts of production processes and b the extent to which they are maintained and new capital goods produced 264. In short:

“When…wants or…opinions concerning…methods of want-satisfaction change, the value of…capital goods is changed accordingly”265.

Menger saw earlier that the various production processes yielding fi nal goods were subdivided amongst numbers of workshops and factories, each turning out only a very small part of the ultimate product. Mises extends this picture to sketch a general picture of production processes in the mid-twentieth century, “the age of electricity”. He too recognises that these processes cover the entire economic system:

“In the market economy production is a continuous, never-ending pursuit split up into an immense variety of partial processes. Innumerable 212 Early Modern England | Sudha Shenoy

processes of production with diff erent periods of production are in progress simultaneously…Production is distributed among numerous individual plants, farms, workshops, and enterprises, each of whichserves only limited purposes…At each instant numberless processes are in progress some of which are nearer to, some remoter from, the achievement of their special tasks” 266.

Goods move without ceasing through this complex network of production units: “The social process of production never stops”. Capital goods are gradually transformed by various fi rms into their fi nal shape as consumption goods:

“The intermediary products or capital goods, the produced factors of further production, change hands in the course of events, they pass from one plant to another until fi nally the consumers’ goods reachthose who use and enjoy them” 267.

In short, capital goods are interim means, en route to an end:

“Capital goods are intermediary stations on the way…from the very beginning of production to its fi nal goal, the turning out of consumers’ goods” 268.

Since capital goods eventually yield fi nal outputs, the various production processes obviously “complement one another” in doing so. But the heterogenous capital goods involved must also form capital combinations (as we saw above) — utilising versatile resources and current inputs. Thus production processes also “[compete] for scarce factors of production” 269. — Mises does not say so explicitly, but it follows that as people’s circumstances and ends change, diff erent capital combinations become (or remain) viable, while others have to operate with fewer or diff erent versatile resources and inputs, and others are dropped altogether. (Hayek develops this insight much further, see