Economic Science and the Austrian Method

Hans-Hermann Hoppe's short book defends one claim about economics and then carries that claim into philosophy. The Mises Institute's 2007 reprint, copyright 1995 and 2007, contains two chapters and a preface by Llewellyn H. Rockwell, Jr. "Praxeology and Economic Science" grew from two 1987 lectures and argues that economic theorems are necessary conditional propositions derived from purposeful action. "On Praxeology and the Praxeological Foundation of Epistemology" reprints a 1993 essay from The Economics and Ethics of Private Property and applies the same method to logic, measurement and the conditions of knowing. Hoppe writes as an advocate for one methodological school. He states his premises openly enough that a careful reader can trace each inference and mark where case facts or disputed philosophical steps enter, and that openness is the main reason to read him.

The foundation is a test of denial. Someone who argues that human behavior lacks purpose has chosen a goal, picked words as means and given up other uses of his time, so the argument enacts what it disputes. Hoppe calls the resulting knowledge synthetic a priori and grounds that status in the logic of the proposition, so validation attaches to the reasoning whatever confidence anyone feels. Reflection on choosing yields ends, means, forgone alternatives and an expected gain with possible loss, and the realized outcome can fall short of the expectation. A theorem needs the axiom plus a described situation. Hoppe's account of economic reasoning adds a description of a world with definite actors, means, goals and costs, then deduces what follows when that situation changes in a specified way. Conclusions about a fictional Crusoe world hold for that world, he writes, while conclusions about the real one require a situation identified as real. His marginal utility example likewise assumes units of equal serviceability within a defined supply. Before applying any claimed theorem, a reader can ask which situation it presupposes and whether the case at hand fits.

Money supplies his clearest case of what conditional knowledge offers a forecaster. If the quantity of money rises while demand for cash balances stays constant, purchasing power falls. A concurrent change in cash demand can cancel or amplify that effect, and Hoppe ties such demand to people's future states of knowledge, which he holds to be unpredictable. A forecaster with sound theory can misjudge cash demand and miss the outcome, while one who denies any link between money and prices can land on the right forecast because an unforeseen rise in cash demand offsets his error. Hoppe calls the predictive usefulness of praxeological knowledge limited. He still concludes that praxeologically informed forecasters average better in the long run, under explicitly stated assumptions: both groups are, on average, equally able to anticipate the other concurrent changes and equally lucky in guessing them. The theory restricts which predictions are consistent with it, and the advantage follows from that constraint together with those assumptions. That makes the claim a conditional comparison, distinct from an unconditional guarantee of performance. The narrower of two related claims holds that what an actor will learn tomorrow lies beyond his knowledge today. His broader thesis that causal forecasting of human behavior is impossible remains a contested position the book argues for, and readers can weigh it apart from the narrower point.

History gets a substantive treatment of its own. Hoppe concedes that history lacks a clear-cut criterion for deciding between rival explanations equally based on understanding, and that historians who agree on every fact can weigh influences differently. He nonetheless excludes a wide range of accounts. A true explanation must be one the actor could, in principle, verify as naming the factors behind his conduct. Explaining Hoppe's own move from Germany to the United States by an earlier growth spurt in Michigan corn fails that test, because the corn lay outside his motives and interests. Caesar is unavailable to verify any explanation of his crossing the Rubicon, and a living actor can have reasons to withhold verification of an accurate account. The criterion therefore concerns verifiability in principle, and an actor's refusal leaves the question open. Self-report is fallible as well. Hoppe compares the historian to a grammarian who states rules a speaker follows by habit and would struggle to formulate, which lets writings, deeds and context reveal reasons the actor left implicit. The criterion separates reasons from coincidence and leaves some disagreements among historians standing. His grouping of historicist and hermeneutic writers under relativism is his portrait of opponents, and their own texts are the place to test it.

The second chapter changes register. Mises left a few brief remarks on how action grounds knowledge, and Hoppe says he must break new ground beyond them. He adds an a priori of argumentation, since disputing whether humans can argue is itself an argument, and he treats knowing as something an embodied actor does in contact with the world. Acquiring knowledge costs scarce means, at least body and time. Once acquired, it becomes in his account an inexhaustible resource for as long as it is remembered. Logic, arithmetic and the construction of measurement standards become his further cases, since measuring presupposes a standard and a procedure for applying it. Specific causal connections in nature, along with the particular values, choices and costs of actors, he assigns to empirical knowledge. His arguments and footnotes reach into geometry and physics, and those extensions are Hoppe's methodological commitments for readers to assess. The need for a measuring standard settles a point about procedure, and any conclusion about the geometry of physical space requires further steps. Treating modern mathematics, physics or statistics as refuted would go far beyond what these arguments establish.

The book suits readers who want the philosophical case behind Mises's method and have patience for epistemological argument. Readers seeking a forecasting manual or an even-handed survey of methods will find a partisan brief, and its reasoning can be studied by readers who accept some extensions and contest others. The Mises Institute offers the official PDF of the 2007 edition. Our review of Human Action covers the treatise that applies the method to prices and money.