Up to the 18th century, historians paid little or no attention to the epistemological problems of their craft. In dealing with the subject of their studies, they again and again referred to some regularities that — as they themselves and their public assumed — are valid for any kind of human action irrespective of the time and the geographical scene of the action as well as of the actors’ personal qualities and ideas. But they did not raise the question whether these regularities were of an extraneous character or inherent in the very nature of human action. They knew very well that man is not able to attain all that he wants to attain. But they did not ask whether the limits of a man’s power are completely described by reference to the laws of nature and to the Deity’s miraculous interference with them, on the one hand, and to the superior power of more puissant men, on the other hand.
Like all other people, the historians too distinguished between behavior complying with the moral law and behavior violating it. But, like all other people, they were fully aware of the fact that nonobservance of the laws of ethics did not necessarily — in this life — result in failure to attain the ends sought. Whatever may happen to the sinner in the life hereafter and on the day of the Last Judgment, the historian could not help realizing that on earth he could sometimes fare very well, much better than many pious fellow men.
Entirely new perspectives were opened when the economists discovered that there prevails a regularity in the sequence and interdependence of market phenomena. It was the first step to a general theory of human action, praxeology. For the first time people became aware of the fact that, in order to succeed, human action must comply not only with what are called the laws of nature, but also with specific laws of human action. There are things that even the most efficient constabulary of a formidable government cannot bring about, although they may not appear impossible from the point of view of the natural sciences.
It was obvious that the claims of this new science could not fail to give offense from three points of view. There were first of all the governments. Despots as well as democratic majorities are not pleased to learn that their might is not absolute. Again and again they embark upon policies that are doomed to failure and fail because they disregard the laws of economics. But they do not learn the lesson. Instead they employ hosts of pseudoeconomists to discredit the “abstract,” i.e., in their terminology, vain teachings of sound economics.
Then there are ethical doctrines that charge economics with ethical materialism. As they see it, economics teaches that man ought to aim exclusively or first of all at satisfying the appetites of the senses. They stubbornly refuse to learn that economics is neutral with regard to the choice of ultimate ends as it deals only with the methods for the attainment of ends chosen, whatever these ends may be.
There are, finally, authors who reject economics on account of its alleged “unhistorical approach.” The economists claim absolute validity for what they call the laws of economics; they assert that in the course of human affairs something is at work that remains unchanged in the flux of historical events. In the opinion of many authors this is an unwarranted thesis, the acceptance of which must hopelessly muddle the work of historians.
In dealing with this brand of relativism, we must take into account that its popularity was not due to epistemological, but to practical considerations. Economics pointed out that many cherished policies cannot result in the effects aimed at by the governments that resorted to them, but bring about other effects — from the point of view of those who advocated and applied those policies — were even more unsatisfactory than the conditions that they were designed to alter. No other conclusion could be inferred from these teachings than that these measures were contrary to purpose and that their repeal would benefit the rightly understood or long-run interests of all the people. This explains why all those whose short-run interests were favored by these measures bitterly criticized the “dismal science.” The epistemological qualms of some philosophers and historians met with an enthusiastic response on the part of aristocrats and landowners who wanted to preserve their old privileges and on the part of small business and employees who were intent upon acquiring new privileges. The European “historical schools” and American Institutionalism won political and popular support, which is, in general, denied to theoretical doctrines.
However, the establishment of this fact must not induce us to belittle the seriousness and importance of the problems involved. Epistemological relativism as expressed in the writings of some of the historicists, e.g., Karl Knies and Max Weber, was not motivated by political zeal. These two outstanding representatives of historicism were, as far as this was humanly possible in the milieu of the German universities of their age, free from an emotional predilection in favor of interventionist policies and from chauvinistic prejudice against the foreign, i.e., British, French, and Austrian science of economics. Besides, Knies wrote a remarkable book on money and credit, and Weber gave the deathblow to the methods applied by the schools of Schmoller and Brentano by demonstrating the unscientific character of judgments of value. There were certainly in the argumentation of the champions of historical relativism points that call for an elucidation.
II. Positivist Dogma and Human Action
Before entering into an analysis of the objections raised against the “absolutism” of economics, it is necessary to point out that the rejection of economics by epistemological relativism has nothing to do with the positivist rejection of the methods actually used by historians.
In the opinion of positivism, the work of the historians is mere gossip or, at best, the accumulation of a vast amount of material that they do not know how to use. What is needed is a science of the laws that determine what happens in history. Such a science has to be developed by the same methods of research that made it possible to develop out of experience the science of physics.
The refutation of the positivistic doctrine concerning history is an achievement of several German philosophers, first of all of Wilhelm Windelband and of Heinrich Rickert. They pointed out in what the fundamental difference between history, the record of human action, and the natural sciences consists. Human action is purposive, it aims at the attainment of definite ends chosen, it cannot be treated without reference to these ends, and history is in this sense — we must emphasize, only in this sense — finalistic. But to the natural sciences the concept of ends and final causes is foreign.
Then there is a second fundamental difference. In the natural sciences man is able to observe in the laboratory experiment the effects brought about by a change in one factor only, all other factors the alteration of which could possibly produce effects remaining unchanged. This makes it possible to find what the natural sciences call experimentally established facts of experience. No such technique of research is available in the field of human action. Every experience concerning human action is historical, i.e., an experience of complex phenomena, of changes produced by the joint operation of a multitude of factors. Such an experience cannot produce “facts” in the sense in which this term is employed in the natural sciences. It can neither verify nor falsify any theorem. It would remain an inexplicable puzzle if it could not be interpreted by dint of a theory that had been derived from other sources than historical experience.
Now, of course, neither Rickert and the other authors of the group to which he belonged, the “Southwestern German philosophers,” not the historians who shared their conception went as far as this last conclusion. To them, professors of German universities at the end of the 19th and the beginning of the 20th century, the very idea that there could be any science claiming for its theses universal validity for all human action irrespective of time, geography, and the racial and national characteristics of people remained unknown. For men living in the spiritual climate of the second German Reich, it was an understood thing that the pretensions of “abstract” economic theory were vain and that German wirtschaftliche Staatswissenschaften (the economic aspects of political science), an entirely historical discipline, had replaced the inane generalization of the school of Hume, Adam Smith, and Ricardo. As they saw it, human action — apart from theology, ethics, and jurisprudence — could be dealt with scientifically only by history. Their radical empiricism prevented them from paying any attention to the possibility of an a priori science of human action.
The positivist dogma that Dilthey, Windelband, Rickert, and their followers demolished was not relativistic. It postulated a science — sociology — that would derive from the treatment of the empirical data provided by history a body of knowledge that would render to the mind the same services with regard to human action that physics renders with regard to events in the sphere of nature. These German philosophers demonstrated that such a general science of action could not be elaborated by a posteriori reasoning. The idea that it could be the product of a priori reasoning did not occur to them.
III. The Alleged Materialism of Economics
The deficiency of the work of the classical economists consisted in their attempt to draw a sharp line of demarcation between “purely economic activities” and all other human concerns and actions. Their great feat was the discovery that there prevails in the concatenation and sequence of market phenomena a regularity that can be compared to the regularity in the concatenation and sequence of natural events. Yet, in dealing with the market and its exchange ratios, they were baffled by their failure to solve the problem of valuation. In interpersonal exchange transactions objects are not valued according to their utility, they thought, because otherwise “iron” would be valued more highly than “gold.” They did not see that the apparent paradox was due only to the vicious way they formulated the question. Value judgments of acting men do not refer to “iron” or to “gold” as such, but always to definite quantities of each of these metals between which the actor is forced to choose because he cannot have both of them. The classical economists failed to find the law of marginal utility. This shortcoming prevented them from tracing market phenomena back to the decisions of the consumers. They could deal only with the actions of the businessmen, for whom the valuations of the consumers are merely data. The famous formula “to buy on the cheapest and to sell on the dearest market” makes sense only for the businessman. It is meaningless for the consumer.
Thus forced to restrict their analysis to business activities, the classical economists constructed the concept of a science of wealth or the production and distribution of wealth. Wealth, according to this definition meant all that could be bought or sold. The endeavors to get wealth were seen as a separate sphere of activities. All other human concerns appeared from the vantage point of this science merely as disturbing elements.
Actually, few classical economists were content with this circumscription of the scope of economics. But their search for a more satisfactory concept could not succeed before the marginalists substituted the theory of subjective value from the various abortive attempts of the classical economists and their epigones. As long as the study of the production and distribution of wealth was considered as the subject matter of economic analysis, one had to distinguish between the economic and the noneconomic actions of men. Then economics appeared as a branch of knowledge that dealt with only one segment of human action. There were, outside of this field, actions about which the economists had nothing to say. It was precisely the fact that the adepts of the new science did not deal with all those concerns of man which in their eyes were qualified as extraeconomic that appeared to many outsiders as a depreciation of these matters dictated by an insolent materialistic bias.
Things are different for modern economics, with its doctrine of the subjective interpretation of valuation. In its context the distinction between economics and allegedly noneconomic ends becomes meaningless. The value judgments of the ultimate consumers express not only the striving after more tangible material goods, but no less the striving after all other human concerns. The narrow viewpoint of a science of — material — wealth is surpassed. Out of the discipline of wealth evolves a general theory of all choices made by acting men, a general theory of every kind of human action, praxeology. In their behavior on the market people evidence not only their wishes to acquire more material goods, but no less all their other preferences. Market prices reflect not only the “materialistic side” of man, but his philosophical, ethical, and religious ideas as well. The observance of religious commandments — to build and maintain houses of worship, to cease working on holidays, to avoid certain foods either always or on specific days and weeks, to abstain from intoxicating beverages and tobacco, to assist those in need, and many others — is one of the factors that determines the supply of and the demand for consumers’ goods and thereby the conduct of business. Praxeology is neutral with regard to the ultimate ends that the individuals want to attain. It does not deal with ultimate ends, but with the means chosen for their attainment. It is merely interested in the question whether or not the means resorted to are fitted to attain the ends sought.
The enormous quantity of antieconomic literature published in the last hundred and fifty years turns around one argument only. Its authors repeat again and again that man as he really is and acts strives not only after more material amenities, but also after some other — higher or loftier or ideal — aims. From this point of view the self-styled Historical School attacked what they called the absolutism of the economic doctrine and advocated a relativistic approach. It is not the theme of this paper to investigate whether the economists of the classical school and their epigones were really guilty of having neglected to pay due attention to the nonmaterialistic concerns of man. But it is to be emphasized that all the objections raised by the Historical School, e.g., by Knies in his famous book, are futile and invalid with regard to the teachings of modern economics.
It is customary in German political literature to distinguish between an older and a later Historical School. As the champions of the older school, Roscher, Bruno Hildebrand, and Knies are named. The younger school consists of the followers of Schmoller who after the establishment of the Reich in 1870 held the chairs of economics at the German universities. This way of subdividing into periods the history of ideas is an outcome of the parochialism that induced German authors to slight all that was accomplished abroad. They failed to realize that the “historical” opposition against what was called the absolutism of economics was inaugurated outside of Germany. Its outstanding representative was Sismondi rather than Roscher and Hildebrand. But it is much more important to realize the fact that all those who in Germany as well as in other countries after the publication of the books of Jevons, Menger, and Walras criticized economic doctrine on account of its alleged materialism were fighting against windmills.
IV. Science and “Irrationality”
Max Weber’s concept of a general science of human action — to which he applied the name sociology — no longer refers to the distinction between economic action and other activities. But Weber virtually endorsed the objections raised by historicism against economics by distinguishing between genuinely rational action, on the one hand, and other kinds of action. His doctrine is so closely connected with some untranslatable peculiarities of the German language that it is rather difficult to expound it in English.
The distinction that Weber makes between “social action” and other action is, from the point of view of our problem, of little importance. The main thing is that Weber quite correctly distinguishes between sinnhaftes Handeln and the merely physiologically determined reactions of the human body. Sinnhaftes Handeln is directed by the Sinn the acting individual attaches to it; we would have to translate: by the meaning the actor attaches to it and by the end he wants to attain by it. This definition would appear as a clear distinction between human action, the striving after a definite end, on the one hand, and the physiological — quasi-automatic — reactions of the nerves and cells of the human body, on the other hand. But then Weber goes on to distinguish within the class of sinnhaftes Handeln four different subclasses. The first of these subclasses is called zwechrationales Handeln and is defined as action aiming at a definite end. The second subclass is called wertrationales Handeln and is defined as action determined by the belief in the unconditional intrinsic value (unbedingter Eigenwert) of a certain way of conduct as such, without regard to its success, from the point of view of ethics, aesthetics, religion, or other principles. What Weber failed to see is the fact that also the striving after compliance with definite ethical, aesthetical, and religious ideas is no less an end than any other end that men may try to attain. A Catholic who crosses himself, a Jew who abstains from food and drink on the Day of Atonement, a lover of music who forgoes dinner in order to listen to a Beethoven symphony, all aim at ends that from their point of view are more desirable than what they have to renounce in order to get what they want. Only a personal judgment of value can deny to their actions the qualification zweckrational, i.e., aiming at a definite end. And what in Weber’s definition do the words “without regard to its success” mean? The Catholic crosses himself because he considers such behavior as one link in a chain of conduct that will lead him to what for him is the most important success of man’s earthly pilgrimage. It is tragic that Max Weber, the eminent historian of religion, the man who tried to free German sociological thought from its naive commitment to judgments of value, failed to see the contradictions of his doctrine.
Other attempts to distinguish between rational action and nonrational or irrational action were likewise based on crass misconstructions and failed. Most of them called “irrational” conduct directed by mistaken ideas and expectations concerning the effects of definite methods of procedure. Thus, magic practices are today styled as irrational. They were certainly not fitted to attain the ends sought. However, the people who resorted to them believed that they were the right technique in the same way in which physicians up to the middle of the past century believed that bleeding is a method of preventing and curing various diseases. In speaking of human action, we have in mind conduct that, in the opinion of the actor, is best fitted to attain an end he wants to attain, whether or not this opinion is also held by a better informed spectator or historian. The way in which contemporary physicians deal with cancer is not irrational, although we hope that one day more efficacious therapeutic and prophylactic methods will be discovered. A report concerning other people’s actions is confusing if it applies the term irrational to the activities of people whose knowledge was less perfect than that of the reporter. As no reporter can claim for himself omniscience, he would at least have to add to his qualification of an action as irrational the proviso “from my personal point of view.”
Another way in which the epithet “irrational” is often employed refers, not to the means, but to the ends of definite modes of conduct. Thus, some authors call, either approvingly or disapprovingly, “irrational” the behavior of people who prefer religious concerns, national independence, or other goals commonly called noneconomic to a more abundant supply of material satisfactions. Against this highly inexpedient and confusing terminology there is need to emphasize again and again the fact that no man is called to sit in judgment on other people’s judgments of value concerning ultimate ends. When the Huguenots preferred the loss of all their earthly possessions, the most cruel punishments, and exile to the adoption of a creed that in their opinion was idolatrous, their behavior was not “irrational.” Neither was Louis XIV “irrational” when he deprived his realm of many of its most worthy citizens in order to comply with the precepts of his conscience. The historian may disagree with the ultimate ends that the persecutors and their victims were aiming at. But this does not entitle him to call the means to which they resorted in order to attain their ends irrational. The terms “rational” and “irrational” are just as much out of place when applied to ends as when applied to means. With regard to ultimate ends, all that a mortal man can assert is approval or disapproval from the point of view of his own judgments of value. With regard to means there is only one question, viz., whether or not they are fitted to attain the ends sought.
Most of our contemporaries are guided by the idea that it is the worst of all crimes to force a man, by recourse to violence, to behave according to the commandments of a religious or political doctrine that he despises. But the historian has to record the fact that there were ages in which only a minority shared this conviction, and unspeakable horrors were committed by fanatical princes and majorities. He is right in pointing out that Louis XIV, in outlawing Protestantism, inflicted irreparable evils on the French nation. But he must not forget to add that the King was not aware of these consequences of his policy and that, even if he had anticipated them, he would perhaps nonetheless have considered the attainment of religious uniformity as a good for which the price paid was not too high.
The surgeons who accompanied the armies of ages past did their best to save the lives of the wounded warriors. But their therapeutic knowledge was pitifully inadequate. They bled the injured man whom only a transfusion of blood could have saved and thus virtually killed him. Because of their ignorance, their treatment was contrary to purpose. It would be misleading and inexpedient to call it irrational. Present-day doctors are not irrational, although probably better informed physicians of the future will qualify some of their therapeutical techniques as detrimental and contrary to purpose.
V. The Serviceableness of the Means Employed to Attain the Ends Sought
Whenever the distinction between rational and irrational is applied to ultimate ends, the meaning is that the judgments of value underlying the choice of the end in question meet with approval or disapproval on the part of the speaker or writer. Now the promulgation of judgments of value is not the business of a man in his capacity as a praxeologist, economist, or historian. It is rather the task of religion, metaphysics, or ethics. History of religion is not theology, and theology is not history of religion.
When the distinction between rational and irrational is applied to means, the meaning is that the speaker or writer asserts that the means in question are not serving their purpose, i.e., that they are not fit to attain the ends sought by the people who resort to such means. It is certainly one of the main tasks of history to deal with the serviceableness of the means people employed in their endeavors to attain the ends sought. It is also certain that the main practical goal of praxeology and its hitherto best-developed part, economics, is to distinguish between means that are fit to attain the ends sought and those that are not. But it is, as has been pointed out, not expedient and rather confusing to use for this distinction the terms “rational” and “irrational.” It is more appropriate to speak of means answering the intended purpose and those not answering it.
This holds true also with regard to the way in which the terms “rational” and “irrational” are employed by psychoanalysts. They “call behavior irrational that is predominately emotional or instinctual,” and furthermore “all unconscious functions” and in this sense distinguish between “irrational (instinctual or emotional) action as opposed to rational action, and irrational as opposed to rational thinking.” Whether this terminology is expedient for the treatment of the therapeutic problems of psychoanalysis may be left to the psychoanalysts. From the praxeological point of view, the spontaneous reactions of the human body’s organs and the activity of instinctual drives are not action. On the other hand, it is manifestly the outcome of a personal judgment of value to call emotional actions — e.g., the action with which a man may react to the awareness of his fellow men’s distress — irrational. It is further obvious that no other meaning can be ascribed to the term “irrational thinking” than that it is logically invalid thinking and leads to erroneous conclusions.
VI. Historical Relativism versus Praxeology
The philosophy of historical relativism — historicism — fails to see the fact that there is something unchanging that, on the one hand, constitutes the sphere of history or historical events as distinct from the spheres of other events and, on the other hand, enables man to deal with these events, i.e., to record their succession and to try to find out their concatenation, in other words, to understand them. This unchanging phenomenon is the fact that man is not indifferent to the state of his environment (including the conditions of his own body) and that he tries, as far as it is possible for him to do so, to substitute by purposive action a state that he likes better for a state he likes less. In a word: man acts. This alone distinguishes human history from the history of changes going on outside the field of human action, from the study of “natural history” and its various subdivisions as, e.g., geology or the evolution of various species of living beings. In human history we are dealing with the ends aimed at by the actors, that is, with final causes. In natural history, as in the other branches of the natural sciences, we do not know anything about final causes.
All human wisdom, science, and knowledge deal only with the segment of the universe that can be perceived and studied by the human mind. In speaking of human action as something unchanging, we refer to the conditions of this segment only. There are authors who assume that the state of the universe — the cosmos — could change in a way about which we simply do not know anything and that all that our natural sciences say about the behavior of sodium and levers, for example, may be invalid under this new state. In this sense they deny “any kind of universality to chemical and mechanical statements” and suggest that they be treated “as historical ones.” With this brand of agnostic hyperhistoricism that deals in its statements with visionary conditions about which — as they freely admit — we do not know and cannot know anything, reason and science have no quarrel.
Thinking man does not look upon the world with a mind that is, as it were, a Lockean paper upon which reality writes its own story. The paper of his mind is of a special quality that enables man to transform the raw material of sensation into perception and the perceptual data into an image of reality. It is precisely this specific quality or power of his intellect — the logical structure of his mind — that provides man with the faculty of seeing more in the world than nonhuman beings see. This power is instrumental in the development of the natural sciences. But it alone would not enable man to discover in the behavior of his fellow men more than he can see in the behavior of stars or of stones, in that of amoebae or in that of elephants.
In dealing with his fellow men, the individual resorts not only to the a priori of logic, but besides to the praxeological a priori. Himself an acting being, he knows what it means to strive after ends chosen. He see more in the agitation and the stir of his fellow men than in the changes occurring in his nonhuman environment. He can search for the ends their conduct is aiming at. There is something that distinguishes in his eyes the movements of germs in a liquid as observed in the microscope from the movements of the individuals in the crowd he may observe in the rush hour at New York’s Grand Central Terminal. He knows that there is some “sense” in a man’s running around or sitting still. He looks upon his human environment with a mental equipment that is not required or, to say it more precisely, is downright obstructive in endeavors to explore the state of his nonhuman environment. This specific mental equipment is the praxeological a priori.
The radical empiricism of the historicists went astray in ignoring this fact. No report about any man’s conduct can do without reference to the praxeological a priori. There is something that is absolutely valid for all human action irrespective of time, geography, and the racial, national, and cultural characteristics of the actors. There is no human action that can be dealt with without reference to the categorical concepts of ends and means, of success and failure, of costs, of profit or loss. What the Ricardian law of association, better known as the law of comparative cost, describes is absolutely valid for any kind of voluntary human cooperation under the division of labor. What the much-derided economic laws describe is precisely what must always and everywhere happen provided the special conditions presupposed by them are present.
Willy nilly, people realize that there are things they cannot achieve because they are contrary to the laws of nature. But they are loath to admit that there are things that even the most powerful government cannot achieve because they are contrary to praxeological law.
VII. Historicist Self-Contradiction
Different from the case of the historians who are loath to take cognizance of the praxeological a priori is the case of the authors who belong to the various historical, “realistic,” and institutional schools of economics. If these scholars were consistent, they would limit their studies to what is called economic history; they would deal exclusively with the past and would carefully abstain from asserting anything about the future. Prediction about events to come can be made only on the ground of knowledge of a regularity in the succession of events that is valid for every action irrespective of the time and the geographical and cultural conditions of its occurrence. Whatever economists committed to historicism or institutionalism do, whether they advise their own governments or those backward foreign countries, is self-contradictory. If there is no universal law that describes the necessary effects of definite ways of acting, nothing can be predicted and no measure to bring about any definite results can be recommended or rejected.
It is the same with those authors who, while rejecting the idea that there are economic laws valid for all times, everywhere, and for all people, assume that every period of history has its own economic laws that have to be found a posteriori by studying the history of the period concerned. These authors may tell us that they have succeeded in discovering the laws governing events up to yesterday. But — from the point of view of their own epistemological doctrine — they are not free to assume that the same laws will also determine what will happen tomorrow. All that they are entitled to affirm is: experience of the past shows that A brought about B; but we do not know whether tomorrow A will not bring about some other effects than B.
Another variety of the denial of economics is the trend doctrine. Its supporters blithely assume that trends of evolution as manifested in the past will go on. However, they cannot deny that in the past trends did change and that there is no reason whatever to assume that present trends will not one day change too. Thus, this becomes especially manifest when businessmen, concerned about the continuation of prevailing trends, consult economists and statisticians. The answer they get is invariably this: statistics show us that the trend you are interested in was still continuing on the day to which our most recent statistical data refer; if no disturbing factors turn up, there is no reason why the trend should change; however, we do not know anything about the question whether or not such new factors will present themselves.
VIII. Ethical Relativism
Epistemological relativism, the essential doctrine of historicism, must be clearly distinguished from the ethical relativism of other schools of thought. There are authors who combine praxeological relativism with ethical relativism. But there are also authors who display ethical absolutism while rejecting the concept of universally valid praxeological laws. Thus, many adepts of the Historical School of economics and of institutionalism judge the historical past from the point of view of what they consider as indisputable, never-changing moral precepts, e.g., equality of wealth and incomes. In the eyes of some of them private property is as such morally objectionable. They blame the economists for an alleged praise of material wealth and disparagement of more noble concerns. They condemn the system of private enterprise as immoral and advocate socialism on account of its presumed higher moral worth. As they see it, Soviet Russia complies better with the immutable principles of ethics than the nations of the West committed to the cult of Mammon.
As against all this emotional talk there is need to point out again: praxeology and economics, its up-to-now best- developed branch, are neutral with regard to any moral precepts. They deal with the striving after ends chosen by acting men without any regard whether these ends are approved or disapproved from any point of view. The fact that the immense majority of men prefer a richer supply of material goods to a less ample supply is a datum of history; it does not have any place in economic theory. Economics neither advocates capitalism nor rejects socialism. It merely tries to show what the necessary effects of each of these two systems are. He who disagrees with the teachings of economics ought to try to refute them by discursive reasoning, not by abuse, insinuations, and the appeal to arbitrary, allegedly ethical standards.