Praxeology is the study of purposeful human action; it’s about conscious human choice. As “rational animals,” we make decisions and do things. In praxeology, we reflect upon the general concept of action. Then, through informal deduction, we can derive what’s implied in human action.
Those interested in logic should become interested in praxeology!
Praxeology is the logic of human action.
Economists of the Austrian School understand that economics is a science closer to applied logic, philosophy, and mathematics than to empirical sciences like physics or biology. For example, let’s consider this simple proposition: “If a man exchanges P for Q, then he must have then valued Q greater than P.”
We can tell at once that a proposition like this doesn’t require empirical testing any more than a mathematical proposition. Its validity and truth can be analyzed without experiment. It somewhat resembles a mathematical proposition: “If a man has $100 and in a store is willing to spend relatively more of that $100 on X, it follows that he can only spend less of it on Y and Z.”
Economist Ludwig von Mises in Human Action (e.g., chapters one, four, and seven) takes it as a starting point that man purposefully acts. In reflecting on the concept, we observe that actions, insofar as they are purposeful, have ends and means.
This discipline of understanding action Mises called praxeology.
This doesn’t mean that we are rationally calculating robots who only want to maximize pleasure or money. Nor does it mean that we cannot act impulsively, imprudently, or foolishly. Human action is human action insofar as it is purposeful or teleological.
Notice that this approach recognizes our humanity. Our first person subjective point of view cannot be entirely captured by the so-called “hard” sciences like physics. Praxeology starts with our first person perspective, and then logically deduces from there. This makes it a good “fit” into neo-Scholastic philosophy (contrary to what Mises might think!).
Similarly, chapter one of Man, Economy, and State by Murray N. Rothbard shows that we can understand that because man acts, we can infer many things. Action implies, e.g., means, time, ends, value, cost, profit, loss, etc.
Step-by-step, we can move from thinking about action per se to action as it relates to valuing a solitary item (or good) as it fulfills some given end. Next, we can move from how man values in action a solitary item to how valuation changes as man possesses multiple units of that once solitary thing.
The founder of the Austrian School is Carl Menger. The main contribution he made to what is called the Marginalist Revolution, along with Leon Walras and William Jevons, was in seeing how prices are not ultimately determined by the costs of production. Menger saw that the reason why the price of something like water is less than diamonds had to do with marginal utility. In buying and selling, men don’t trade whole classes of goods. Rather, we are always dealing with units—with scarce, actual things.
Water-Diamond Paradox! It’s related to the Fallacy of Division.
The British Classical School, with David Hume, Adam Smith, and David Ricardo, thought about goods in whole classes. They saw a paradox in that water, which is a must have for life, is priced less. The only answer they had was that diamonds cost more to produce.
There are a lot of problems with that theory! The insight Menger had was that marginal utility determines value. The value of any good is its least valuable end to which it can be put. Water is not valued for its highest employment. That doesn’t determine its price. A man typically would be more than willing to forgo an additional unit of water for what he sees as a more valuable diamond.
Praxeology bring us to this conclusion! The Law of Diminishing Marginal Utility: A supply is made up of one or more quantities of a good that are homogeneous, i.e., 100% equally serviceable. As a man increases his supply, the additions, other things being equal, can only, by only logical implication, be put into service to less and less valued ends.
So just from thinking about human action we can derive that!
And from this, we can reach the Law of Demand.
References and Resources
It’s remarked that economics — quoting Thomas Carlyle — is “the dismal science.” This not too flattering description has, however unconsciously, been a fixed feature of the public’s feelings towards the subject. The discipline of economics, though, cannot be confined to academic specialists. Rather than a subject for a few, it’s a subject for everyone.
Ludwig von Mises, in his text Human Action, argued that the study of “Economics must not be relegated to classrooms and statistical offices and must not be left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man’s human existence” (p. 874).
“[T]echnological innovations” in the market only require “one or a few enlightened spirits.” Studying the details, e.g., of computer science is not that important for the average citizen. A good financial environment requires more. “[I]t is different,” von Mises wrote, “in the field of social organization and economic policies. Here the best theories are useless if not supported by public opinion” (p. 859).
Literally hundreds and hundreds of free books and essays can be found at The Ludwig von Mises Institute. There is no better resource in economic theory! I’m extremely grateful for their work.
There’s nothing out there like Liberty Classroom.
It includes a number of economic courses. Professor Jeffrey Herbener, who is the chairman of the department of economics at Grove City College, is extremely knowledgeable and has an excellent introductory course. And Dr. Robert Murphy, who has a gift to present complex ideas simply, provides us with two courses on the history of economic thought.
I’ve had a particular interest in the origin and value of money. Many economists today don’t realize that many arguments are circular when discussing the value of money. Ludwig von Mises provided a brilliant argument that breaks out of the circle in his book Theory of Money and Credit. It is one of the most intellectually stimulating books I’ve ever read.
A couple of years ago I got a chance to write what become one of my favorite essays written by me. . .