Why I am not Mises’ Adherent

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Ludwig von Mises was eminent and inspiring social scientist. There is no doubt. His work is worth reading. Mises will remain integral part of Austrian economic school forever. However, I claim that the impact of his works will have rather informative than stimulating character for further development of this school. There is a quite strong claim. Nevertheless, it must be be substantiated.

I started to doubt Mises’ method much earlier than at the moment when I was writing this article. Doubts, or awareness of the problem, always results in the tendency of looking for a solution. The first thing I did not agree with was, I call it, closed nature of his system. It might sound like a cliché. However, studying Mises’ and his followers’ theory really gives the impression that almost everything is already solved. The impression that mankind has already started to understand, although only in principles, the functioning of something so complicated as the human society. We will see that it is not like that. I dare say that Mises’ explanations are not applicable, they are literally fallacious.

In this article I want to point out logical inconsistency of Mises’ logical system in the field of economic calculation, money and method. I will show where this inconsistency is present. Then, I will present a potential solution offered by Hayek-Pavlík’s methodology of so called evolutionary apriorism. The text will include extensive quotations of Mises’ and related works in order to introduce the issue to the reader without laborious search for appropriate texts and to avoid being blamed for taking his statements out of the context.

What My Problem with Mises’ Theory Consists in – Basic Proposition

Mises’ system is a logical system, which inevitably leads to the fact that if we ever discover incorrect assumption at the beginning of argumentation, the subsequent logical deduction must by invalid at the point where this assumption started. This is not my statement, but H. H. Hoppe claims it in his Economic Science and the Austrian Method, where he writes:[1]

Provided there is no flaw in the process of deduction, the conclusions that such reasoning yield must be valid a priori because their validity would ultimately go back to nothing but the indisputable axiom of action. If the situation and the changes introduced into it are fictional or assumptional (a Robinson Crusoe world, or a world with only indivisible or only completely specific factors of production), then the conclusions are, of course, a priori true only of such a “possible world.” If, on the other hand, the situation and changes can be identified as real, perceived and conceptualized as such by real actors, then the conclusions are a priori true propositions about the world as it really is.“

This basically means that the system of explanation and analysis is correct only when assumptions are correct and, vice versa, it is incorrect when assumptions are incorrect. So, it is the way how Mises is building his system. Why am I not Mises’ adherent? Because I claim, as the reader will see below, that Mises uses logically opposite assumptions when carrying out an analysis of problems specified by himself. In principle across the whole his system, you can see the following logical inconsistency:

A.    On the one hand, Mises claims that human action (including action´s categories) is focused on the future. It is future oriented human action on which the analysis of specified problems is based. This is what I consider as correct.

B.    At the same time, he explains the causes of specified problems on the basis of deterministic impact of the past.

These two statements cannot hold true simultaneously. Because it is true what Hoppe claims and Mises has inconsistency in assumptions, Mises’ analysis is invalid where he is logically consistent in the context of his assumption B. The problem can be depicted in three basic points of his system. The first is economic calculation, the second is the issue of development of purchasing power of money and the third is methodological approach to explanation of acting itself. Are these real key and basic areas of his system?

Mises claims the following about economic calculation: “Economic calculation is the fundamental issue in the comprehension of all problems commonly called economic[2]. The question of money as the cornerstone of economic analysis is closely related to the issue of economic calculation. Money is simply the basis of our economic perception of reality because every economic good which enters into the monetary exchange has its value expressed in money. And there should be no doubt about the importance of human action in Mises’ system. The action axiom is the basis of praxeology and his entire axiomatic system. I believe that designating these places in Mises’ system as crucial should not arouse any controversy.

Economic Calculation as the Concept Derived from Past Prices

If we search through Mises’ works what basically economic calculation means, then, besides the fact that it should be performed in money, we do not find many explicit statements in the sense of how exactly it should be performed. The picture has to be put together from multiple works. At the same time, I think that Mises must have felt his solution was not perfect. However, he did not know it was not correct. The signs of doubts concerning imperfection of his solution are apparent in his work in the form of ambiguity, verbose explanation and persuasion of readers about what is missing in his work. Let’s examine it in a historical context. In 1920, in his article Economic Calculation in Socialist Commonwealth Mises realizes that he must bypass subjective assessment of goods once he wants to describe calculation concept. He needs to identify a common denominator and a common basis for mutual comparison of subjective assessment of goods among humans. He comes up with an exchange ratio of two goods, i.e. the price that is the objective feature of reality. Decision for choosing price as an objective phenomenon is understandable. Especially when we realize that Mises must have taken into account transition from subjective value sphere of human mind, and thus incomparable character of perception of goods, to something enabling calculation as a concept. Price[3] as an objective feature of reality allows to grasp the given feature of reality to any number of human subjects

. So, Mises’ “solution” is understandable, even though it is not correct. In his text, Mises subsequently performs another shortcut when he claims that there is no other calculation possible except for the monetary one; at least within complicated economic processes. The question what exactly was before the invention of money is missing or more precisely it is vaguely explained that due to the low rate of complexity of problems it was not problem to calculate in kind. But how exactly our ancestors did calculation the reader will not find. Calculation in Mises system is done only in money prices. So, how does calculation look like? Mises writes:

„Monetary calculation has its limits. …  The exchange-relationship which obtains between money and goods is subjected to constant, if (as a rule) not too violent, fluctuations originating not only from the side of other economic goods, but also from the side of money. However, these fluctuations disturb value calculations only in the slightest degree, since usually, in view of the ceaseless alternations in other economic data—these calculations will refer only to comparatively short periods of time—periods in which “good” money, at least normally, undergoes comparatively trivial fluctuations in regard to its exchange relations.“ (bold added, p. 11)

This quotation implies that Mises means the influence of past money prices intended at carrying out calculation and it is described in the part where he mentions minimum fluctuation of assessment of denominator and minimum fluctuation of purchasing power of denominator of calculation, i.e. money. However, we can follow up this finding with another statement. This time it is included in his Epistemological Problems of Economics[4] from 1933 where he writes:

„The money prices of goods and services that we are able to ascertain are the ratios in which these goods and services were exchanged against money at a given moment of the relatively recent or remote past. These ratios are always past; they always belong to history. They correspond to a market situation that is not the market situation of today.“ (p. 168)

This is absolutely fine, but then, there is stated:

Economic calculation is able to utilize to a certain extent the prices of the market because, as a rule, they do not shift so rapidly that such calculation could be essentially falsified by it. Moreover, certain deviations and changes can be appraised with so close an approximation to what really takes place later that action—or “practice”—is able to manage quite well with monetary calculation notwithstanding all its deficiencies.“ (bold added, p.168)

 You can see that Mises’ economic calculation is possible only because exchange ratio of money and any economic good X forming monetary price of the good X does not change too quickly. However, the problem we face is that if the action is focused on the future and future oriented action is our point of beginning of any consideration of calculation, how can past price be decisive for calculation? Past price, as Mises indicates himself, is the past that does not correspond with the current and anticipated market situation. However, as we see, in his system, the past price that does not correspond with the anticipated situation, is the base for a new calculation. The new calculation, as he claims, is possible only on the basis of slowly changing price expressed in money. Finally, we can also look at his Human Action[5] from 1949/1963, where Mises describes economic calculation in the following way:

„As action is always directed toward influencing a future state of affairs, economic calculation always deals with the future. As far as it takes past events and exchange ratios of the past into consideration, it does so only for the sake of an arrangement of future action.“ (bold added, p. 211)

„The prices of goods and services are either historical data describing past events or anticipations of probable future events. Information about a past price conveys the knowledge that one or several acts of interpersonal exchange were effected according to this ratio. It does not convey directly any knowledge about future prices. …. The prices of the past are for him merely starting points in his endeavors to anticipate future prices. Practical man looks at the prices of the future, be it only the immediate future of the next hour, day, or month. For him the prices of the past are merely a help in anticipating future prices. Not only in his preliminary calculation of the expected outcome of planned action, but no less in his attempts to establish the result of his past transactions, he is primarily concerned with future prices.“ (bold added, p. 213)

Mises again calls attention of the reader to the fact that calculation is focused on the future. Sure, it is. But what is it derived from? From the past. Because for an acting man past prices are only the beginning of the effort to estimate future prices. To avoid any uncertainty about Mises’ derivation of calculation as action focused on the future on the basis of the past, let’s show also his concept in Mises’ followers works. They explain some of his puzzling statements, e.g. J. G. Hülsmann criticizes Hayek-Kirzner’s approach to the issue of prices and calculation in his work Knowledge, Judgment, and the Use of Property[6]. His criticism explains that past price cannot bear any relevant information for an entrepreneur, which attacks the entire Hayek-Kirzner’s system of entrepreneurial discovery on the basis of past prices[7], while at the end of his work he claims the following in the spirit of Mises’ tradition:

„Let us recall that ex ante calculation does not consist of computation based on past market prices; it is a judgment in quantitative terms that relies on an expectation of future prices. However, …, calculation is the source of present market prices as they are continually formed in the market process. Present prices are starting point of our estimates. Considering the intervening changes of these conditions we form, by Verstehen, a judgment upon the prices of the future. Without the basis provided by present money prices, this procedure would be impossible. It is indirectly that present prices permit calculation and thus the selection of most value – productive technology under prevailing conditions. They can have no communicative function because they are only the, if indispensable, starting point for our understanding of the future.” (p. 47) 

Even though Hülsmann does not mention past prices, he should know that also present price is the question of the past; or in the words of G. L. Shackle, it is too late for present to be considered for action. Present price is one-off performed exchange ratio. In terms of current prices, action (including calculation) is primordial and only then two subjects possibly enter into exchange. And they create price, i.e. objective ratio. Hülsmann criticizes Hayek-Kirzner’s approach on twenty or so pages of his paper claiming that past price does not bear any information or any knowledge. However, at the end, in the name of Mises’ defense, he does nothing but logical suicide. He denies what he criticizes most of the time.

Moreover, the argument about present prices raises an empirical question what is the present and what is the past. This would imply inadequacy of argumentation about economic calculation. We would have to decide on the basis of our arbitrarily chosen time limit what is and what is not the present in order to be able to make calculation. Hülsmann notes that “Considering the intervening changes of these conditions we form, by Verstehen, a judgment upon the prices of the future.” And if we admit that Mises uses past prices only as the “data” while using of Verstehen, i.e. understanding what the others do, then this is still not relevant for the calculation concept. Mises uses Verstehen in the general mode, i.e. the mode of abstract comprehension of the past, present and future activities of another acting individuals. Not in the specific mode about which past/present price informs us. Past price informs us about what people did in the past under given circumstances, what they made and how they perceived the situation. However, specificity of that given situation cannot be applied to performing of anticipation of future price which implies considering specificity of future state of things which leads into the price anticipation. In other words: if I calculate, I do not consider past prices and past conditions but I consider only future conditions and the resulting prices that would be develop by exchange however only in possibility mode; to create price I need consent of other one, therefore I am in the possibility mode.

If I use Verstehen to make calculation, it must be used only towards the future, i.e. considering that if my economic activity is moving forward, I anticipate and understand potential reaction consent / disagreement of the other acting individual by means of Verstehen. We have seen via above mentioned quotations that Mises’ statements are quite remote from the general way of using Verstehen while explaining economic calculation. Hülsmann’s statements are remote as well since he claims too that we calculate on the basis of current, i.e. already formed prices. For Mises and Hülsmann past/current price presents a determining factor without which they cannot describe calculation. This is logically opposed to the statement that action is focused on the future[8].

Purchasing Power of Money – Concept Derived Surprisingly from the Past

While Mises is ambiguous in the field of economic calculation, i.e. he always notifies the reader about the fact that calculation is focused on the future and only subsequently he starts to claim that past prices, which do not change so quickly, are the beginning of the effort to estimate future prices, he is completely unambiguous in the field of deriving purchasing power of money. He “does not hide” himself. In his concept of regression theorem, he illustratively returns to the place in the past where he derived purchasing power of money, i.e. the price of money, from the last known price of commodity that was an industrial good before being used as money. Neither the regression process itself, nor the statement that present purchasing power of money is derived from the anticipation of the future purchasing power of money, does not change anything on this. In his Theory of Money and Credit Mises writes the following notices concerning the concept[9]:

The subjective value of money must be measured by the marginal utility of the goods for which the money can be exchanged. It follows that a valuation of money is possible only on the assumption that the money has a certain objective exchange value. Such a point d’appui is necessary before the gap between satisfaction and “useless” money can be bridged.“ (bold added, p. 68)

If the objective exchange value of money must always be linked with a preexisting market exchange ratio between money and other economic goods (since otherwise individuals would not be in a position to estimate the value of the money), it follows that an object cannot be used as money unlessat the moment when its use as money beginsit already possesses an objective exchange value based on some other use. This provides both a refutation of those theories which derive the origin of money from a general agreement to impute fictitious value to things intrinsically valueless and a confirmation of Menger’s hypothesis concerning the origin of the use of money. This link with a preexisting exchange value is necessary not only for commodity money, but equally for credit money and fiat money. No fiat money could ever come into existence if it did not satisfy this condition.“ (bold added, p. 110)

In other words, in Mises’s theory the object of reality cannot be money, if it is not money, the claim which is logical suicide. As I prove in my other works,[10] Mises did not explain only the origin of money but not even the origin of purchasing power of money, while he was aware of the fact that explanation of the origin of money was crucial for further description of all associated economic phenomena. Two clear things result from the given quotations: first, Mises derives explicitly purchasing power of money from the past and at the same time he supposes in objectivistic way that money must have purchasing power. He claims that money cannot be money without having purchasing power.

In terms of a methodological procedure, it is not a small mistake on Mises’ part. And given concept is the basis of understanding economic phenomena. If they are incorrectly explained, further deduction, which is logically derived from their basis, cannot be correct.

Methodological Origin of Mises’ Error

A full description of an error, i.e. a place where I perceive an obvious error from the methodological point of view, can be spotted in his Theory and History: An Interpretation of Social and Economic Evolution[11] (1957) in the chapter of Determinism and Materialism, which concludes with the division of determinism into fatalistic and activistic determinism. Mises explains that human understanding of reality is deterministic, i.e. implemented through the category of causality. He further explains the doctrine of determinism and the doctrine of free will. In terms of the doctrine of free will he claims that the representatives of this doctrine make a mistake when stressing absolute independency of free will. They do not realize that the past impacts us. In Mises words:

„Such decisions, says the free-will doctrine, are basically undetermined and uncaused; they are not the inevitable outcome of antecedent conditions. They are rather the display of man’s inmost disposition, the manifestation of his indelible moral freedom“ (bold added, p. 76)

 „Both doctrines neglect to pay due attention to the role of ideas. The choices a man makes are determined by the ideas that he adopts. The determinists are right in asserting that everything that happens is the necessary sequel of the preceding state of things. What a man does at any instant of his life is entirely dependent on his past, that is, on his physiological inheritance as well as of all he went through in his previous days. Yet the significance of this thesis is considerably weakened by the fact that nothing is known about the way in which ideas arise  (bold added, p. 77)

The offshoots of human mental efforts, the ideas and the judgments of value that direct the individuals’ actions, cannot be traced back to their causes, and are in this sense ultimate data. In dealing with them we refer to the concept of individualityBut in resorting to this notion we by no means imply that ideas and judgments of value spring out of nothing by a sort of spontaneous generation and are in no way connected and related to what was already in the universe before their appearance. We merely establish the fact that we do not know anything about the mental process which produces within a human being the thoughts that respond to the state of his physical and ideological environment. This cognition is the grain of truth in the free-will doctrine. However, the passionate attempts to refute determinism and to salvage the notion of free will did not concern the problem of individuality.“ (p. 78)

It follows that determination of our action is based on what he called individuality. Individuality is based on our opinions and ideas built in the past. It is the past of individuality determining our further acting.

Next, Mises divides determinism in fatalistic (passive in the context of action) and activistic determinism. Fatalistic determinism determines nature, while activistic one determines humans

Activistic determinism is the one we use when (liberally) selecting means in order to satisfy our needs (ends) and trying to eliminate perceived uneasiness. He correctly stresses that not everything is possible; either what is determined by fatalist determinism, i.e. by nature or by activistic determinism. It means that activistic determinism is what we want (ex ante) with the aim to eliminate perceived uneasiness. To eliminate uneasiness, we use understanding of both knowledge, i.e. how fatalist determinism works and how activist determinism works meaning that we understand (Verstehen) what and possibly how other humans perceive and how and why other people behave within society as they do.

We know, e.g. that water quenches thirst – this is fatalist determinism. We know that perception of thirst will not be quenched by fire. Water is chosen as means of eliminating uneasiness when we perceive thirst. Activist determinism means that if we do not have water, we perform economic activity to gain it. We might get it either by expending economic resources on gaining it, or we can exchange it for e.g. diamond. That is activistic determinism.

I think however, that stressing of determinism, even though activistic, is an error in terms of free will concept. It is this deterministic modus operandi (meaning to search for the cause in the past) that Mises comes to an incorrect conclusion about calculation and money. Although calculation and money are product of free will (or free “wills” of more people), Mises is looking for the cause of them in the past – in human ideas born on the basis of “physiological inheritance as well as of all he (man) went through in his previous days.” It seems that Mises does not realize that he gets into a vicious circle during argumentation, once he claims that our free will is determined by individuality/personality[12]. However, individuality or personality is already the free will itself. The vicious circle is the most apparent in this quotation from The Ultimate Foundation of Economic Science[13]:

„What the term “freedom of the will” refers to is the fact that the ideas that induce a man to make a decision (a choice) are, like all other ideas, not “produced” by external “facts,” do not “mirror” the conditions of reality, and are not “uniquely determined” by any ascertainable external factor to which we could impute them in the way in which we impute in all other occurrences an effect to a definite cause. There is nothing else that could be said about a definite instance of a man’s acting and choosing than to ascribe it to this man’s individuality.“ (pp. 57-58)

I perceive Mises’s problem in description/grasp of activistic determinism (will) by means of instruments of fatalist determinism, i.e. C must be caused by B and B must have ever been caused by A. Then he must inevitably get into a vicious circle. I think that Mises is not aware of the fact that fatalist determinism, i.e. nature, created super-layer over itself – activist determinism, i.e. mind. Mind should be approached independently as the beginning of acting in the form of super-layer. The past is interesting and nice for mind and it might be even inspiring. However, it is not decisive. Mind is not a computer with stored data expressing a past state of data that mind induces according to how it is programmed. It is clear that we can think only about what we have in our mind[14]. However, the content of our mind is in the mode of free will, not in the mode of past stored data. We do not have any other experience with mind. Always and under all circumstances we perceive ourselves only from the perspective of today and tomorrow. We are time-continuous beings and we live in time continuum but we perceive ourselves only towards the future. Thinking and state of mind is a flow. We can think about the past but only in the form of flow of ideas directing onwards. If past was decisive, we would not see any change associated with our will. Will is in-deterministic. In Mises words it is already ultimate given, i.e. it does not have any determination in this strict sense. It is the determinant. That is why Mises’ effort to anchor the origin of our thinking is an argument in a vicious circle. Formation of individuality or personality on the basis of past states, formed opinions and beliefs and ideological environment is still that free will[15].

I do not want to claim that natural determinism does not influence us. We are part of the nature. Our body is part of the nature. Our thinking is associated with a naturally given neuronal structure of mind. Mind is based on natural determinism of the brain neuronal structure. However, a new structure – a mental model, i.e. mind or will – is formed above it. Natural determination takes place at neuronal level. But no determination exists at mental level, the level of mind. Only the possibility of influencing based on the past exists. We have some experience, some cultural-social background, we have some ideas, a preview of what we have survived. However Free will has such a characteristic feature that it can throw away the past – just as it is. Because a better solution exists irrespective of any past. And vice versa. Anything can happen and anything can be anticipated, but if free will decide, the past will be decisive for the mind. The main quality of mind is the fact that it is not fatalistic determinism. Its fatalistic determinism, so to speak, is the fact that it is not fatalist determinism but the free will. So, it is very new structure of deterministic phenomena of fatalistic determinism. Per se.

In Mises’ theory we do not see mind as an option influenced by the past. Mises distinctly uses the term “determines” in the context that mind is “given by this and that”. However, “this and that” can only influence free will, it does not determine it in the mode that something must happen under “this and that” certain circumstances. Free will is unpredictable[16], it is in the mode of constant determination of our action.

Of course, Mises cannot be considered a strict determinist. He realizes the problems of determinism at the level of description of action. However, in my opinion, Mises remains at one layer of determinism when building his system of human action. He does not significantly enough “distinguish” new quality of nature in the form of mind. What is activisticic can be focused only on the future. This is what free will is about. It generates again and again something new, i.e. activist determinism itself. Free will (mind) is the beginning of the aimed change and elimination of uneasiness. Probably it would be the best to say that Mises does not distinguish this new quality of nature (the new layer of phenomena) as something as its characteristic feature is in-determination at mental level. Mises considers these phenomena only from the perspective of the neuronal structure which is part of fatalist determinism and looking for its origin by instruments of this kind of determinism.

I attribute it to the fact that Mises is a logician who does not consider layers which nature created once it created thinking. If he wanted his “monostichous” deterministic system to be successful, he would have to substantiate the thinking per se. The fact that he was considering it this way is indicated not only in his logical-circle statements but also in this text from Theory of History:

Perhaps natural science will one day be in a position to describe the physical, chemical, and biological events. which in the body of the man Newton necessarily and inevitably produced the theory of gravitation. In the meantime, we must be content with the study of the history of ideas as a part of the sciences of human action.“ (p. 93)

The context of his work shows that he does not think we would ever be able to achieve this form of determinism, but the part indicates how he was thinking. This way of thinking is present also in other places of his system. Let’s have a look at it.

The Problem of Mises’ Subjectivist Praxeology

Praxeology is not Mises’ term. Peter Mentzel[17] states that it was Richard Whately, English economist and theologist, who invented it in 1831, and the term is derived from a Greek word used for exchange. However, Mises established praxeology as a science. Mises’ praxeology – science about human action – is based on logical deduction of the whole system from so called a priori synthetic statement “a man acts”, which is absolutely correct[18]. However, it is not denial or confirmation of the statement. It is all about the system we infer from. And every axiomatic system based on some assumptions must inevitably come across vicious circle in some moment of explanation. We could realize this the most when answering the question how do we explain thinking? Due to the fact that we explain thinking by thinking, at some point we must come across to explain certain phenomenon of thinking which we are not able to explain, or we must fall than into argumentation in circle. In case of what I call Mises’ subjectivist praxeology we explain action by action. What is the fact. And it is clear that if we want to disprove the claim we have to act. It means that acting must be explained by acting but consequently, similarly as with the thinking, we inevitably come across a vicious circle[19].

The reader should not get the impression that I doubt, that e.g. evaluation and value, ends, means, choice, costs, profit and loss, as well as time and causality, were not categories of mind and human acting. The question is how they got there and what their origin is. Is it really fully subjective? Did these categories not undergo development? Were they simply given perfectly since forever? Don’t we simplify the problem? To what extent is this individual thinking and to what extent influence of the others which causes that the given categories are perceived today in this certain and specific way? How much is subjectivism and individual acting inter-subjective?

In my opinion the important question is whether the potential inter-subjective origin of given categories does not change their meaning: the reader will see below that I take this view. In this context it is interesting to find the following statements in Mises’ Human Action[20]:

As a thinking and acting being man emerges from his prehuman existence already as a social being. The evolution of reason, language, and cooperation is the outcome of the same process; they were inseparably and necessarily linked together. But this process took place in individuals. It consisted in changes in the behavior of individuals. There is no other substance in which it occurred than the individuals. There is no substratum of society other than the actions of individuals.“ (p. 43)

„Individual man is born into a socially organized environment. In this sense alone we may accept the saying that society is–logically or historically–antecedent to the individual. In every other sense this dictum is either empty or nonsensical. The individual lives and acts within society. But society is nothing but the combination of individuals for cooperative effort. It exists nowhere else than in the actions of individual men. It is a delusion to search for it outside the actions of individuals. To speak of a society’s autonomous and independent existence, of its life, its soul, and its actions is a metaphor which can easily lead to crass errors.“ (p. 143)

We can see that Mises realizes the impact of individuals on each other. He also claims that reason, language or collaboration is a result of the social development manifesting itself in individuals. It is, therefore, strange that examination of the categories in his system is not implemented in more inter-subjective way and that it adheres to absolute individualism. Paradoxically, one of the reasons may be impact of the time he formed his system which was accompanied by growing collectivism and socialism, i.e. the given period might have impacted his work. I think that these inter-subjective suggestions, which he partly ignored, are quite significant. Let’s analyze why.

How to Explain What We Call “Verstehen”? Did Mises Omit this Question?

Mises divides sciences about human action on historical (thymological) and praxeological (apriori). Division itself and Mises’ interest to grasp and explain the past surely does not imply Mises’ determinism, or his deterministic-historical view on action. But I think that in this field we can find at least one reason of the above-mentioned examples of failure of Mises’ method. This reason manifests itself later on in his radical subjectivism, apriorism and partial ignorance of mutual inter-subjective influence of people. In order to understand this reason better we must explain why it is important what Mises following up Weber and historic school means when he uses the term Verstehen in the examined field. The term expresses a man’s view of another man, i.e. we mutually understand what we do, why we act, the way we act. It is an important investigation method without which we would not be able to interpret any historical event linked with life in human society and at the same time we would not be able to anticipate what the others do, or will do. He writes about Verstehen the following in his The Ultimate Foundation of Economic Science:

This specific understanding of the sciences of human action aims at establishing the facts that men attach a definite meaning to the state of their environment, that they value this state and, motivated by these judgments of value, resort to definite means in order to preserve or to attain a definite state of affairs different from that which would prevail if they abstained from any purposeful reaction. Understanding deals with judgments of value, with the choice of ends and of the means resorted to for the attainment of these ends, and with the valuation of the outcome of actions performed.“ (p. 48)

This intuitive statement each of us knows and uses it is not so obvious. It is the basis of identification and interpretation of social phenomena! Mises also notes that it is not an empathy (Einfühlung) and speculation about motifs of someone else’s acting. It is understanding and identification of the act itself, i.e. understanding and identification of the fact that the present act is the act we mean and not another act. How can we recognize that someone else is acting? How can we distinguish instinctive natural conduct and intentional action one from the other? An example of Verstehen is the concept of mutual exchange or understanding that a man has a preference scale and that he acts in the context of urgency of the most important subjective need. Peter V. Mentzel writes in his Praxeology, History, and the Perils of Historicism[21] the following:

„Mises … insisted that the tools of Verstehen should be brought to bear against real, individual human subjects without reference to any preconceived notions about what their particular desires or motivations might be. Mises believed that this was possible, despite the infinite variations in human”. (p. 24)

Mises claims that this understanding (Verstehen) is possible on the basis of a mind structure allowing people to apply understanding on surrounding phenomena and to interpret them in a way they understand it. Their interpretation is focused on both the past and the future.

As we could see above Mises realizes how important the impact of the others creating community on an individual is. At the same time, he perceives inevitability of mutual understanding. However, he can see the reasons of mutual understanding in the logical structure of mind. He does not put similar emphasis on the others when building the content of the logical structure of mind per se. It is, therefore, possible to say, that Mises did not omit the question of how to explain Verstehen, but he narrowed explanation of its use and reasons of existence to the logical structure of mind. However, it inevitably leads in certain point that his method gets to vicious circle. He explains thinking of an individual by thinking, without any layers. In terms of a research method we face the very question of how to overcome a vicious circle of argumentation to which our mind and explanation of phenomena may get.

Evolutionary Apriorism Brings One of the Potential Solutions

Mises is not an evolutionary apriorist. Even though we can find the following passage in his The Ultimate Foundation of Economic Science:

„The a priori categories are not innate ideas. What the normal —healthy—child inherits from his parents are not any categories, ideas, or concepts, but the human mind that has the capacity to learn and to conceive ideas, the capacity to make its bearer behave as a human being, i.e., to act.“ (p. 16)

The fact he does not admit development in this field of human mind is apparent also in other quotations. This follows immediately after the above passage:

Since the a priori categories emanating from the logical structure of the human mind have enabled man to develop theories the practical application of which has aided him in his endeavors to hold his own in the struggle for survival and to attain various ends that he wanted to attain, these categories provide some information about the reality of the universe. They are not merely arbitrary assumptions without any informative value, not mere conventions that could as well be replaced by some other conventions. They are the necessary mental tool to arrange sense data in a systematic way, to transform them into facts of experience, then these facts into bricks to build theories, and finally the theories into technics to attain ends aimed at.“ (p. 16)

Mises strives for evolutionary description but he does not give a chance to evolution. This is obvious also in another quotation where he clearly shows that for him a man (as an entity) either exists or does not exist. There is no in-between. No vaguely defined mind. The The Ultimate Foundation of Economic Science proves it:

„We can think of the evolutionary process that transformed the nonhuman ancestors of mankind into human beings as a succession of small, gradual changes spread over millions of years. But we cannot think of a mind in which the category of action would have been present only in an incomplete form, 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. We cannot think of an acting being that would not in concreto distinguish what is end and what is means, what is success and what is failure, what he likes more and what he likes less, what is his profit or his loss derived from the action and what his costs are.“ (bold added, p. 8)

Mises did not include another type of methodological way explaining apriori character of thinking via evolutionary development, layering and subsequently “overcoming” vicious circles.

It is a Hayek’s theory of cultural evolution that allows overcoming of vicious circles of mind. As Hayek’s follower Ján Pavlík[22] shows, Hayek can be anchored by means of common “thinking predecessors” as A. Smith or F. Hegel, to the branch of evolutionary scientists. Hayek’s theory must be further adapted and modified, which Pavlík does. On the basis of Hayek’s theory of cultural evolution Pavlík calls for mitigation of Mises’ radical apriorism and for development of evolutionary apriorism[23]. However, the base of evolutionary apriorism is already in Hayek´s works.

In his Sensory Order[24], Hayek indicates that thinking has a tautological character, which means mutual categorization of objects of reality and their qualities by mind[25]. The problem is that thinking must inevitably come to a vicious circle: one thing is defined by another one and vice versa; the reason behind could be categorization mechanism of mind. Hayek’s statement that thinking itself is based on tautologies makes sense and should not be mysterious[26]. It should not be no other because from the physiological point of view mind consists of mutual bonding of neural system. The question is how we overcome these tautologies.

From the perspective of what Pavlík calls evolutionary apriorism (I prefer the term evolutionary intersubjective apriorism) it means that individual’s thinking, which inevitably has axiomatic (vicious) character, is overcome intersubjectively (and sometimes intersubjectively in unconscious way)[27]. In my opinion evolutionary apriorism describes the principles of how individual mind can “overcome” its limits when interpreting reality. Tautological character of one human mind is overcome intersubjectively. We, human beings, “overcome” limited mind by solving a problem together, i.e. by means of language structures that subsequently allow to formulate discovered outcomes about reality, i.e. also about mind itself. For that reason, progress and gradual explanation of how we think in principles is possible. Even though, as Hayek anticipates, the final conclusion how we think will never be explain in its maximum. We will not explain ourselves.

Simply put: where a man is helpless, solution is brought by collaboration of humans. Intersubjectivity of thinking overcomes individual mind and consequently on the other hand individual mind can formulate conclusions about itself. This way we can regard also Mises’ Verstehen. The fact that we understand acting of the other one, we can anticipate how humans are going to behave and to act, even though not accurately, relates to the intersubjective character of how we think. So, the content and structure of mind should be perceived in the context of the other one. At the same time the structure of mind should be regarded from Hayek’s view, i.e. as a plastic, self-organizing, flexible, synaptic-physiological as well as flexible mental structure which will develop into the form we know and perceive unless we stimulate it intersubjectively[28]. So, mind is not a structure containing inevitably all logical categories, as Mises[29] probably describes, but a structure that must develop and that needs life in community, i.e. life with the other one, for its development.

The number of intersubjective instruments that a man uses on a daily basis is not a small. It includes e.g. language, from the economic perspective it is concept of interest or money itself, prices and the price system, the ways of discovering prices in the market, from the normative perspective it is a law or religion. That is why I think economics is a science that we must regard as a science working with subjective categories such as assessment or preferential scale on the one hand and intersubjective categories such as price, interest, money or a calculation unit, i.e. accounting standard of the other one. And thus, on the basis of intersubjectivity we can explain essence of these categories and interpret more properly problems of social cooperation.

Conclusion:

Mises was a significant and inspiring social scientist. There is no doubt about it. His work is worth reading. This statement was correct from the beginning of my essay. Austrian school needed Mises. However, it is time to move forward. One of the ways to move forward may be evolutionary (intersubjective) apriorism.

I use his theory in my works focused on economic phenomena and I am satisfied with the results. He gives more meaningful answers to the questions from the field of economic calculation (how economic calculation takes place)[30], solves problems of purchasing power of money (what is the purchasing power of money derives from)[31], the issue of the essence of interest rate (what interest is)[32], the definition of what is and what is not an error from the economic perspective (how we know that we economically made a mistake, or vice versa, on the basis of what we know we are successful in e.g. moneyless economic), or  how we can estimate the future if we know that the future is caleidic[33] and why economic agents understand each other. By changing assumptions and putting emphasis on the intersubjective character of described phenomena we change also many conclusions which are “firm” statements of some Austrian school representatives.

Matúš Pošvanc

April 27, 2019, final version May 14, 2019


[1]  Hoppe,  H.  H.  Economic  Science  and  the  Austrian  Method,  p.  26.  WWW  DOCUMENT  <https://mises-media.s3.amazonaws.com/Economic%20Science%20and%20the%20Austrian%20Method_3.pdf

[2]  Mises,  L.  Human  Action,  p.  100.  WWW  DOCUMENT  <https://mises.org/library/human-action-0>

[3]  Price is the exchange ratio once performed.  This is the historical and unquestionable very fact. Therefore we can consider it as objective feature of reality.

[4]  Mises,  L.  Epistemological  Problems  of  Economics,  WWW  DOCUMENT  <https://mises-media.s3.amazonaws.com/epistemological.pdf>

[5]  Mises,  L.  Human  Action.  WWW  DOCUMENT  <https://mises.org/library/human-action-0>

[6]  Hülsmann,  J.G.  Knowledge,  Judgment,  and  the  Use  of  Property.  WWW  DOCUMENT  <https://mises.org/library/knowledge-judgment-and-use-property>

[7]  Hayek-Kirzner´s  approach  is  not  resistant  in  its  form  vis-à-vis  Hülsmann´s  criticism  –  that  must  be  admitted.  The  given  approach  must  be  adapted  and  modified  so  that  calculation  activity  is  focused  only  on  the  future.  Modification  of  Hayek-Kirzner´s  perception  of  the  price  mechanism  is  performed  in  Pošvanc,  M.:  EVOLUČNÉ  MOŽNOSTI  VZNIKU  EKONOMICKEJ  KALKULÁCIE  A  PEŇAZÍ.  PROBLÉM  NEMOŽNOSTI  SOCIALIZMU.  WWW  DOCUMENT  <https://viagold.sk/evolucne-moznosti-vzniku-ekonomickej-kalkulacie-a-penazi-problem-nemoznosti-socializmu-finalna-verzia/>  On the basis of argumentation Hayek-Kirzner´s  approach  should  be  hereafter resistant  vis-à-vis  Hülsmann´s  criticism. 

[8] Solution of the problem is described in Pošvanc, M.  EVOLUČNÉ  MOŽNOSTI  VZNIKU  EKONOMICKEJ  KALKULÁCIE  A  PEŇAZÍ.  PROBLÉM  NEMOŽNOSTI  SOCIALIZMU. WWW DOCUMENT <https://viagold.sk/evolucne-moznosti-vzniku-ekonomickej-kalkulacie-a-penazi-problem-nemoznosti-socializmu-finalna-verzia/>

[9]  Mises, L.  The Theory of Money and Credit.  WWW DOCUMENT <https://mises.org/library/theory-money-and-credit/html/ppp/1230>

[10]  See e.g. Pošvanc, M. Theory of Intersubjective Perception of Value of Money. WWW DOCUMENT <http://www.hayek.sk/theory-of-intersubjective-perception-of-value-of-money/>

[11]  Mises,  L.:  Theory  and  History:  An  Interpretation  of  Social  and  Economic  Evolution.  WWW  DOCUMENT  <https://mises.org/library/theory-and-history-interpretation-social-and-economic-evolution  >

[12]  The  term  “personality”  is  used  in  “The  Ultimate  Foundation  of  Economic  Science”

[13]  Mises,  L.:  The  Ultimate  Foundation  of  Economic  Science.  WWW  DOCUMENT  <https://mises.org/library/ultimate-foundation-economic-science> 

[14]  Personal discussion in the Facebook group “Klub F.A.  Hayeka” with Zdeněk Uhlíř

[15]  If our acting was formed only by past opinions, than theoretically, Marxists and similar socially threatening elements could manage to re-educate all children of all people, generation by generation, and finally achieve what should people think and how they should behave to become true Marxists and they would live consequently “their dreamed world.” Similarly, we would not see concentration camps in North Korea. During existence of the dictatorship minds of North Koreans would be “filled” only with the ideas about social destiny and no oppression would be needed. The reason why we cannot see it is revolt of free will against dictatorial practices.

[16]  Zdeněk Uhlíř describes it in the following way: “Free will is free because it discovers and invents something already undiscovered, something in plural. Free will considers current and potential alternatives and it cannot be (unambiguously) predicted what decision it will make, so he is contingent both in the present and in the past. If determination in the order of things denies it, it will mean that “something must happen” and “it will happen at some time in a certain form” (which does not apply). This refers also to the order of things without any ingredient of free will, see e.g. the theory of deterministic chaos.” Discussion in the Facebook group – Klub F.A.  Hayeka. 30.04.2019. WWW  DOCUMENT  <https://www.facebook.com/groups/339889349859396/permalink/622165004965161>

[17] Peter C. Mentzel, (2018), Praxeology, History, and the Perils of Historicism 1, in Steven Horwitz (ed.) Austrian Economics: The Next Generation (Advances in Austrian Economics, Volume 23) Emerald Publishing Limited, p.  18. 

[18]  Mises´ followers often use this statement in the context of persuasion about inevitable correctness of Mises´ system. Denial of the given statement implies acting as well, confirms universal validity of the statement.

[19]  Mises´ axiom can be examined from this perspective: a curious student could ask what exactly „to act “means and what is precisely “a man” and why apriori synthetic statements must be valid and what caused them to be valid. Simultaneously, he might also think about to what extent and how the statement can apply to our prehistoric predecessors and whether the statement “a man acts” is really all-encompassing and historically applicably, i.e. if it is a modus-operandi of all people of all times.

[20]  Mises, L.:  Human Action.  WWW DOCUMENT <https://mises.org/library/human-action-0>

[21]  Peter  C.  Mentzel  ,  (2018),  Praxeology,  History,  and  the  Perils  of  Historicism  1  ,  in  Steven  Horwitz  (ed.)  Austrian  Economics:  The  Next  Generation  (Advances  in  Austrian  Economics,  Volume  23)  Emerald  Publishing  Limited

[22]Pavlík is one of few Hayek´s followers who is not worried of criticizing him. At the same time, the modifications that Pavlík brings to Hayek, allow Hayek´s theory of cultural evolution enables to theory to resist some relevant critiques of Hayek´s approach. For more details see Pavlík,  J.  WWW  DOCUMENT  <https://kfil.vse.cz/homepage/veda-a-vyzkum/publikacni-cinnost/doc-phdr-jan-pavlik-publikace/

[23]  See PAVLÍK, Ján. Na  obranu (nikoliv  příliš) extrémního  apriorismu. In:  PAVLÍK,  Ján  (ed.).  Filosofické  základy  metodologie  ekonomických  věd  I.Praha  :  Oeconomica,  2002,  p.  11–81.  ISBN  80-245-0468-5 

[24]  Hayek,  F.A.:  The  Sensory  Order:  An  Inquiry  Into  the  Foundations  of  Theoretical  Psychology.  The University of Chicago Press.  1952, 1976.

[25]  See  e.g.  Potužák,  P.  Hayekova  teorie  lidské  mysli. (Hayek´ theory of mind) p.  26.  WWW DOCUMENT <https://nb.vse.cz/kfil/elogos/mind/potuzak13.pdf>

[26]  Compare with “Many authors consider the claim that science tends to the ultimate tautological knowledge of the world as the strangest part of Hayek’s work (Caldwell 2004a:27).  Other  authors  consider  it  a  kind  of  support  of  Mises´  praxeology”  (Di  Iorio  2009:15)“  Ibid.  p.  27

[27]  This way e.g. Pavlík explains the origin of so-called catallactic rules which should have developed from the rules of distributive justice and what Pavlik calls sedimentation of the concept of catallactic rules in no fully conscious minds of our predecessors on the basis of purposeless submission to the rules of distributive justice, which already include sediments of catallactic rules. See Pavlík, J. On the Spontaneous Emergence of the Norms of Distributive Justice and the Catallactic Rules. WWW DOCUMENT  <https://nb.vse.cz/kfil/elogos/ethics/pavlik-5.htm>  By this modification the Hayek´s theory of cultural evolution becomes resistant to the Hoppe´s criticism of Hayek. See Hoppe, H.H.: F. A. Hayek on Government and Social Evolution. WWW  DOCUMENT  <https://mises-media.s3.amazonaws.com/rae7_1_3_3.pdf>

[28]  See e.g. known examples of Helena Keller and Laura Bridgman WWW DOCUMENT  <https://en.wikipedia.org/wiki/Laura_Bridgman>,  or the best-known example of unsocialised children kept out of social contact by their mentally disturbed parents, so called Genie case – feral child. WWW DOCUMENT  <https://en.wikipedia.org/wiki/Genie_(feral_child)> 

See  also  Pošvanc,  M.:  About  some  problems  of  origin  of  preconceived  correlated  thinking  and  its  solution  via  rulemaking  character  of  thinking.  WWW  DOCUMENT

[29]  Mises  is  not  unambiguous  about  what  he  means  by  saying  that  we,  humans,  are  equipped  with  logical  categorisations.  It  is  not  obvious  whether  he  means  any  potential  development  in  this  field.   

Compare with Sanchez, D.:  Mises on Mind and Method.  WWW  DOCUMENT  <  https://mises.org/library/mises-mind-and-method  >  Sanchez  writes  in  the  footnote:

My  use  of  the  term  “inbuilt”  refers  to  Mises’s  characterization  of  the  mind  being  already  “equipped”  with  these  conceptions  prior  to  their  use  in  grasping  reality.  It  should  not  be  taken  as  implying  “innate,”  in  the  sense  that  they  are  present  at  birth.  It  may  however  be  that  our  genetic  constitution  (which  itself  is  present  at  birth)  is  such  that  we  have  the  biological  capacity  to  develop  these  conceptions.  “Man  acquired  these  tools,  i.e.,  the  logical  structure  of  his  mind,  in  the  course  of  his  evolution  from  an  amoeba  to  his  present  state.”“

[30]  See  Pošvanc,  M.  EVOLUČNÉ  MOŽNOSTI  VZNIKU  EKONOMICKEJ  KALKULÁCIE  A  PEŇAZÍ.  PROBLÉM  NEMOŽNOSTI  SOCIALIZMU.  WWW  DOCUMENT  <https://viagold.sk/evolucne-moznosti-vzniku-ekonomickej-kalkulacie-a-penazi-problem-nemoznosti-socializmu-finalna-verzia/>

[31]  Pošvanc, M. Theory of Intersubjective Perception of Value of Money. WWW DOCUMENT <http://www.hayek.sk/theory-of-intersubjective-perception-of-value-of-money/

[32]  Pošvanc,  M.: The Theory of Interest. Revision of the Austrian Approach. WWW DOCUMENT <http://www.hayek.sk/the-theory-of-interest-revision-of-the-austrian-approach/>

[33]  The article is at a draft stage, which will definitely include intersubjective solution of a problem. Definition of a problem itself can be found e.g.  in Hülsmann, J.:  A Realist Approach to Equilibrium Analysis. WWW DOCUMENT <https://mises.org/library/realist-approach-equilibrium-analysis> or in Selgin, G.:  Praxeology and Understanding:  An Analysis of the Controversy in Austrian Economics.  WWW DOCUMENT <https://mises.org/library/praxeology-and-understanding-analysis-controversy-austrian-economics-0> 

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