the ultimate foundation of economic scienceAn Essay on Method

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The Liberty Fund Library of the Works of Ludwig von Mises

edited by bettina bien greaves

The Anti-capitalistic MentalityBureaucracyEconomic Freedom and Interventionism: An Anthology

of Articles and EssaysEconomic Policy: Thoughts for Today and TomorrowEpistemological Problems of EconomicsHuman Action: A Treatise on EconomicsInterventionism: An Economic AnalysisLiberalism: The Classical TraditionMoney, Method, and the Market ProcessNation, State, and Economy: Contributions to the Politics

and History of Our TimeNotes and Recollections: With The Historical Setting of the

Austrian School of EconomicsOmnipotent Government: The Rise of the Total State and Total WarOn the Manipulation of Money and Credit: Three Treatises on

Trade-Cycle TheoryPlanning for Freedom: Let the Market System Work

A Collection of Essays and AddressesSocialism: An Economic and Sociological AnalysisTheory and History: An Interpretation of Social and

Economic EvolutionThe Theory of Money and CreditThe Ultimate Foundation of Economic Science: An Essay

on Method

edited by richard m. ebeling

Selected Writings of Ludwig von Mises

Volume 1: Monetary and Economic Policy Problems Before,During, and After the Great War

Volume 2: Between the Two World Wars: Monetary Disorder,Interventionism, Socialism, and the Great Depression

Volume 3: The Political Economy of International Reformand Reconstruction

ludwig von mises

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UltimateFoundationSc_T_003.indd 1 6/18/15 10:15 AM

The Ultimate Foundation ofEconomic ScienceAn Essay on Method

ludwig von misesEdited by Bettina Bien Greaves

liberty fund Indianapolis

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This book is published by Liberty Fund, Inc., a foundation established to encourage study of the ideal of a society of free and responsible individuals.

The cuneiform inscription that serves as our logo and as the design motif for our endpapers is the earliest-known written appearance of the word “freedom” (amagi), or “liberty.” It is taken from a clay document written about 2300 b.c. in the Sumerian city-state of Lagash.

Editorial Additions © 2006 Liberty Fund, Inc.

Front cover photograph of Ludwig von Mises used by permission of theLudwig von Mises Institute, Auburn, Alabama.

Frontispiece courtesy of Bettina Bien GreavesAll Rights Reserved

First published in 1962 by William Volker Fund in association with D. Van Nostrand, Inc. The second edition was published in 1978 by the Institute for Humane Studies, Inc. In 2002, Bettina Bien Greaves reprinted the second edition in association with the Foundation for Economic Education.

Printed in the United States of America

06 15 16 17 18 c 5 4 3 2 115 16 17 18 19 p 6 5 4 3 2

Library of Congress Cataloging-in-Publication DataVon Mises, Ludwig, 1881–1973.

The ultimate foundation of economic science: an essay on method/Ludwig von Mises.—2nd ed.

p. cm.—(Liberty Fund library of the works of Ludwig von Mises)“The second edition was published in 1978 by the Institute for Humane

Studies, Inc. In 2002, Bettina Bien Greaves reprinted the second edition inassociation with the Foundation for Economic Education”—T.p. verso.

Includes bibliographical references and index.978-0-86597-638-2 (hardcover: alk. paper)978-0-86597-639-9 (pbk.: alk. paper)

1. Economics. 2. Economics—Methodology. 3. Positivism.I. Title. II. Series: Von Mises, Ludgwig, 1881–1973. Works. 2005.

HB71.V65 2006330.01—dc22 2005033274

Liberty Fund, Inc.8335 Allison Pointe Trail, Suite 300Indianapolis, Indiana 46250-1684

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contents

Preface to the Second Edition xi

Some Preliminary Observations Concerning PraxeologyInstead of an Introduction 1

1 The Permanent Substratum of Epistemology 12 On Action 23 On Economics 34 The Starting Point of Praxeological Thinking 45 The Reality of the External World 56 Causality and Teleology 67 The Category of Action 78 The Sciences of Human Action 7

chapter 1 The Human Mind 91 The Logical Structure of the Human Mind 92 A Hypothesis about the Origin of the A Priori

Categories 123 The A Priori 154 The A Priori Representation of Reality 165 Induction 186 The Paradox of Probability Empiricism 237 Materialism 258 The Absurdity of Any Materialistic Philosophy 26

chapter 2 The Activistic Basis of Knowledge 301 Man and Action 302 Finality 313 Valuation 334 The Chimera of Unified Science 34

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viii � contents

5 The Two Branches of the Sciences of Human Action 366 The Logical Character of Praxeology 397 The Logical Character of History 408 The Thymological Method 41

chapter 3 Necessity and Volition 471 The Infinite 472 The Ultimate Given 483 Statistics 494 Free Will 515 Inevitability 54

chapter 4 Certainty and Uncertainty 561 The Problem of Quantitative Definiteness 562 Certain Knowledge 573 The Uncertainty of the Future 584 Quantification and Understanding in Acting

and in History 595 The Precariousness of Forecasting in Human Affairs 606 Economic Prediction and the Trend Doctrine 617 Decision-Making 628 Confirmation and Refutability 629 The Examination of Praxeological Theorems 64

chapter 5 On Some Popular Errors Concerning the Scope and Method of Economics 66

1 The Research Fable 662 The Study of Motives 673 Theory and Practice 694 The Pitfalls of Hypostatization 705 On the Rejection of Methodological Individualism 726 The Approach of Macroeconomics 747 Reality and Play 788 Misinterpretation of the Climate of Opinion 819 The Belief in the Omnipotence of Thought 82

10 The Concept of a Perfect System of Government 8511 The Behavioral Sciences 91

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contents � ix

chapter 6 Further Implications of the Neglect of Economic Thinking 94

1 The Zoological Approach to Human Problems 942 The Approach of the “Social Sciences” 953 The Approach of Economics 984 A Remark about Legal Terminology 995 The Sovereignty of the Consumers 101

chapter 7 The Epistemological Roots of Monism 1041 The Nonexperimental Character of Monism 1042 The Historical Setting of Positivism 1063 The Case of the Natural Sciences 1084 The Case of the Sciences of Human Action 1095 The Fallacies of Positivism 110

chapter 8 Positivism and the Crisis of Western Civilization 1131 The Misinterpretation of the Universe 1132 The Misinterpretation of the Human Condition 1143 The Cult of Science 1164 The Epistemological Support of Totalitarianism 1175 The Consequences 120

Index 121

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preface

This essay is not a contribution to philosophy. It is merely the exposi-tion of certain ideas that attempts to deal with the theory of knowledgeought to take into full account.

Traditional logic and epistemology have produced, by and large,merely disquisitions on mathematics and the methods of the naturalsciences. The philosophers considered physics as the paragon of sci-ence and blithely assumed that all knowledge is to be fashioned on itsmodel. They dispensed with biology, satisfying themselves that one daylater generations would succeed in reducing the phenomena of life tothe operation of elements that can be fully described by physics. Theyslighted history as “mere literature” and ignored the existence of eco-nomics. Positivism, as foreshadowed by Laplace, baptized by AugusteComte, and resuscitated and systematized by contemporary logical orempirical positivism, is essentially pan-physicalism, a scheme to denythat there is any other method of scientific thinking than that startingfrom the physicist’s recording of “protocol sentences.” Its materialismencountered opposition only on the part of metaphysicians who freelyindulged in the invention of fictitious entities and of arbitrary systemsof what they called “philosophy of history.”

This essay proposes to stress the fact that there is in the universesomething for the description and analysis of which the natural sci-ences cannot contribute anything. There are events beyond the rangeof those events that the procedures of the natural sciences are fit to ob-serve and to describe. There is human action.

It is a fact that up to now nothing has been done to bridge over thegulf that yawns between the natural events in the consummation ofwhich science is unable to find any finality and the conscious acts ofmen that invariably aim at definite ends. To neglect, in the treatmentof human action, reference to the ends aimed at by the actors is no less

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absurd than were the endeavors to resort to finality in the interpretationof natural phenomena.

It would be a mistake to insinuate that all the errors concerning theepistemological interpretation of the sciences of human action are tobe ascribed to the unwarranted adoption of the epistemology of posi-tivism. There were other schools of thought that confused the philo-sophical treatment of praxeology and history even more seriously thanpositivism, e.g., historicism. Yet, the following analysis deals first of allwith the impact of positivism.1

In order to avoid misinterpretation of the point of view of this essay,it is advisable, even necessary, to stress the fact that it deals with knowl-edge, science, and reasonable belief and that it refers to metaphysicaldoctrines only as far as it is necessary to demonstrate in what respectsthey differ from scientific knowledge. It unreservedly endorses Locke’sprinciple of “not entertaining any proposition with greater assurancethan the proofs it is built upon will warrant.” The viciousness of posi-tivism is not to be seen in the adoption of this principle, but in the factthat it does not acknowledge any other ways of proving a propositionthan those practiced by the experimental natural sciences and qualifiesas metaphysical—which, in the positivist jargon, is synonymous withnonsensical— all other methods of rational discourse. To expose thefallaciousness of this fundamental thesis of positivism and to depict itsdisastrous consequences is the only theme of this essay.

Although full of contempt for all it considers as metaphysics, theepistemology of positivism is itself based upon a definite brand of meta-physics. It is beyond the pale of a rational inquiry to enter into ananalysis of any variety of metaphysics, to try to appraise its value or itstenability and to affirm or to reject it. What discursive reasoning canachieve is merely to show whether or not the metaphysical doctrine inquestion contradicts what has been established as scientifically provedtruth. If this can be demonstrated with regard to positivism’s assertionsconcerning the sciences of human action, its claims are to be rejectedas unwarranted fables. The positivists themselves, from the point of viewof their own philosophy, could not help but approve of such a verdict.

General epistemology can be studied only by those who are per-fectly familiar with all branches of human knowledge. The special

1. About historicism, see Mises, Theory and History (New Haven: Yale University Press, 1957[Auburn, Ala.: Ludwig von Mises Institute, 1985]), pp. 198 ff.

xii � preface

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epistemological problems of the different fields of knowledge are accessible only to those who have a perfect acquaintance with the respective field. There would not be any need to mention this point ifit were not for the shocking ignorance of everything concerning the sci-ences of human action that characterizes the writings of almost all con-temporary philosophers.2

It may even be doubted whether it is possible to separate the analysisof epistemological problems from the treatment of the substantiveissues of the science concerned. The basic contributions to the mod-ern epistemology of the natural sciences were an accomplishment ofGalilei, not of Bacon, of Newton and Lavoisier, not of Kant and Comte.What is tenable in the doctrines of logical positivism is to be found inthe works of the great physicists of the last hundred years, not in the“Encyclopedia of Unified Science.” My own contributions to the the-ory of knowledge, however modest they may be, are in my economicand historical writings, especially in my books Human Action and The-

ory and History. The present essay is merely a supplement to and a com-mentary on what economics itself says about its own epistemology.

He who seriously wants to grasp the purport of economic theoryought to familiarize himself first with what economics teaches and onlythen, having again and again reflected upon these theorems, turn to thestudy of the epistemological aspects concerned. Without a most care-ful examination of at least some of the great issues of praxeologicalthinking — as, e.g., the law of returns (mostly called the law of dimin-ishing returns), the Ricardian law of association (better known as thelaw of comparative cost), the problem of economic calculation, and soon — nobody can expect to comprehend what praxeology means andwhat its specific epistemological problems involve.

preface � xiii

2. A striking example of this ignorance displayed by an eminent philosopher, Henri Bergson, isquoted in Mises, Human Action (New Haven: Yale University Press, 1949 [4th ed., Irvington, N.Y.:Foundation for Economic Education, 1996]), p. 33 note.

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the ultimate foundation of economic scienceAn Essay on Method

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Some Preliminary ObservationsConcerning Praxeology Instead ofan Introduction

1 The Permanent Substratum of Epistemology

Pavnta rJ�i, everything is in a ceaseless flux, says Heraclitus; there is nopermanent being; all is change and becoming. It must be left to meta-physical speculation to deal with the problems whether this proposi-tion can be borne out from the point of view of a superhuman intelli-gence and furthermore whether it is possible for a human mind to thinkof change without implying the concept of a substratum that, while itchanges, remains in some regard and sense constant in the successionof its various states. For epistemology, the theory of human knowledge,there is certainly something that it cannot help considering as perma-nent, viz., the logical and praxeological structure of the human mind, onthe one hand, and the power of the human senses, on the other hand.Fully aware of the fact that human nature as it is in this epoch of cosmicchanges in which we are living is neither something that existed from thevery beginning of all things nor something that will remain forever, epis-temology must look upon it as if it were unchanging. The natural sci-ences may try to go further and to study the problems of evolution. Butepistemology is a branch—or rather, the basis—of the sciences of man.It deals with one aspect of the nature of man as he emerged from the eonsof cosmic becoming and as he is in this period of the history of the uni-verse. It does not deal with thinking, perceiving and knowing in general,but with human thinking, perceiving and knowing. For epistemologythere is something that it must take as unchanging, viz., the logical andpraxeological structure of the human mind.

One must not confuse knowledge with mysticism. The mystic maysay that “shadow and sunlight are the same.” 1 Knowledge starts fromthe clear distinction between A and non-A.

1. R. W. Emerson, Brahma.

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We know that there were ages of cosmic history in which there didnot exist beings of the kind we call Homo sapiens, and we are free to as-sume that there will be again ages in which this species will not exist.But it is vain for us to speculate about the conditions of beings that are,in the logical and praxeological structure of their minds and in thepower of their senses, essentially different from man as we know himand as we are ourselves. Nietzsche’s concept of a superman is devoid ofany epistemological meaning.

2 On Action

Epistemology deals with the mental phenomena of human life, withman as he thinks and acts. The main deficiency of traditional episte-mological attempts is to be seen in their neglect of the praxeological as-pects. The epistemologists dealt with thinking as if it were a separatefield cut off from other manifestations of human endeavor. They dealtwith the problems of logic and mathematics, but they failed to see thepractical aspects of thinking. They ignored the praxeological a priori.

The shortcomings of this approach became manifest in the teachingsof natural theology as distinguished from revealed theology. Naturaltheology saw the characteristic mark of deity in freedom from the limi-tations of the human mind and the human will. Deity is omniscient andalmighty. But in elaborating these ideas the philosophers failed to seethat a concept of deity that implies an acting God, that is, a God behav-ing in the way man behaves in acting, is self-contradictory. Man acts be-cause he is dissatisfied with the state of affairs as it prevails in the absenceof his intervention. Man acts because he lacks the power to render con-ditions fully satisfactory and must resort to appropriate means in orderto render them less unsatisfactory. But for an almighty supreme beingthere cannot be any dissatisfaction with the prevailing state of affairs.The Almighty does not act, because there is no state of affairs that he can-not render fully satisfactory without any action, i.e., without resorting toany means. For Him there is no such thing as a distinction between endsand means. It is anthropomorphism to ascribe action to God. Startingfrom the limitations of his human nature, man’s discursive reasoningcan never circumscribe and define the essence of omnipotence.

However, it must be emphasized that what prevented peoplefrom paying attention to the praxeological issues was not theological

2 � preliminary observations concerning praxeology

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