August 26, 2017

Economics and Human Action: Praxeology as a Chosen Methodology

By In Articles, Economics

It is well known in Austrian circles that the methodology of economics is praxeology; that is, one can discover economic laws by discovering the implications of the fact that individuals act purposefully. Praxeology is the study of purposeful behavior, it is therefore not concerned with those motions and movements of the body without volitional engagement. These can include, of course, reflexes and instincts, impulses and unconscious activities (sleep walking), muscle memories, and so on. These are left for the physiologists and the psychologists. Praxeology is the study of those behaviors which are intentional; which aim toward fulfillment of a certain desire, or at least the conception of that desire. The summary phrase employed by the praxeologist is “human action” and it must never be forgotten that his use of the phrase always and necessarily includes purpose. Human action therefore, for the praxeologist, is purposeful behavior.

The whole of economic science was not conceived in the beginning by first discovering praxeology as a methodology. That is, in the history of thought, economics was not a field of study that came as a result of the accomplishments of praxeology. In fact, the reverse is true. Praxeology was only later chosen as the methodology for economic science because previous methodologies had failed. For instance, in the history of economics there was the great puzzle, the paradox that was unanswerable before the economic subjectivists: the diamond/water dilemma. On the market, the price for a diamond was tremendous, and the price for a small cup of water was barely noticeable. But water is a foundation for biological life and a diamond is a mere luxury. How can a luxury be “more valuable” than a substance without which there would only be death?

This exposed a major problem in the old stance that value was inherent in the thing itself. The Objective-Value theory could not account for the discrepancy between the objective importance of a good and the price on the market.

It was subjective value theory that solved the riddle. Man does not value things, taught Menger, Walras, and Jevons, based on the entire class of the good in questions. Prices aren’t determined by the objective use of the good, but by how well the good can fulfill a given desire in a given moment. Man is not faced with a situation in which he must choose between all the diamonds and all the water. Rather, he is faced with a situation in which there are smaller units of a desired good, and smaller units of a good that he must exchange in order to acquire the good he desires. By way of example, acting man has the opportunity to give up a certain amount of dollars in exchange for a certain amount/type/quality of water or diamond.

What came of this was the realization that economic laws cannot be discovered while ignoring the purposeful actions of human beings. Acting man is the core of the economy and the economy does not exist without man. Various schools of economic thought, therefore, adopt the idea of man making decisions to different extents. The Keynesian tradition downplays the role of human beings and instead prefers to analyze economic phenomena without much consideration at all of man. The Misesian tradition, however, scrapped all the models, assumptions about “general equilibrium,” (a purely hypothetical situation without reference to Acting Man), and decided instead to get to the root of economic exchanges: the fact that man acts purposefully.

A recent critic observed that I was assuming that most of man’s actions are purposeful, without actually proving this claim. Perhaps most actions, he challenged, are merely the product of the brain; conscious and volitional decision-making having hardly anything to do with the majority of man’s activities. My critic does not disagree that man does mentally make decisions and that man has the capability of choosing means to employ toward certain ends; he merely inquired as to the importance of such a field of study if in fact purposeful behavior was a rare thing in the daily doings of a man. If an activity is anything, physically or mentally, taking place within man then perhaps the number of non-purposeful activities are greater than the purposeful ones. After all, human beings breathe every second of everyday, they scratch itches, they swallow saliva, and they blink. Surely the number of unintentional “actions” outweigh intentional ones.

All this misses the point. It does not matter “how many” activities are done with purpose, or which are merely on non-volitional impulse. What matters is that man does act purposefully, because the study of praxeology concerns itself with the implications of purposeful behavior, whenever they do occur. The economist is choosing praxeology as his methodology and therefore, for his purposes, will employ the phrase “Human Action” for his praxeological investigations into purposeful behavior. After all, the goal of all this is to discover economic truths, not metaphysical ones. Praxeology is chosen as our methodology because human beings are the necessary component of economies. It is their valuation of goods as means to satisfy their desires that allows us to even conceive of something we might call “economy.” Prices, capital structures, prosperity, governments, technology, all these things presuppose purposeful behavior. None of these things can come into existence without first having been determined to be useful in man’s effort to satisfy his desires. Thus, we cannot dissect the nature of economic phenomena by approaching the economy as such, as an entity in itself. We must first look at the components of it and build.

Human Action as purposeful behavior is a tool to discover economic laws and the economist qua his field of study has no interest in discovering a probable fraction of which actions are purposeful and which are not. He is merely using the methodology of purposeful behavior and its implications to give him the building blocks by which he can adequately describe and explain economic phenomena.

In the history of thought, it became clear that there was regularity, patterns, in the human world around us. Peaceful exchanges were made, some men preferred gold, others diamonds, and others water. Why did such exchanges occur? Why are some societies so impoverished they can hardly afford a handful of donkeys, and yet there are others with buildings to the sky, vehicles seen for miles, and people garnished with expensive watches and jewelry? What caused these things, how did they get there? Why do we use money to acquire goods? More profoundly, what are the effects of governments setting price ceilings and price floors? What are the ramifications of subsidies for certain industries and for the outlawing of certain goods? What might happen to civilization if the government– the institution of coercion– decided to single-handedly make decisions regarding the allocation of resources?

The methodology that we employ to give us insight into these problems is the study of purposeful behavior: men employing means to accomplish ends. That is the role of praxeology in the social science of economics because man as a purposeful being is the sine qua non of the phenomenon of economic activity. Praxeology therefore did not lead to economic questions, but rather, historic economic questions gave realization of the need to consider and extrapolate from praxeological foundations.

Written by C.Jay Engel

Editor and creator of The Reformed Libertarian. Living in Northern California with his wife, he writes on everything from politics to theology and from culture to economic theory. You can send an email to reformedlibertarian@gmail.com