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Capital., Expectations, and the Market Process -g % Capital., Expectations, and the Market Process Essays on the Theory of the Market Economy By Ludwig M. Lachmann Edited with an Introductionby Walter E. Grinder SHEED ANDREWS AND McMEEL, INC. Subsidiary of Universal Press Syndicate Kansas City This edition is cosponsored by the Institute for Humane Studies, Inc., Menlo Park, California, and Cato Institute, San Francisco. Capital, Expectations, and tht Market Proce._ copyright © 1977 by the Institute for Humane Studies, Inc., Menlo Park, California. All rights reserved. Printed in the Um_ed States of America. No part of this book may be used or reproduced in any manner whatsoever without written permission except in the case of reprints in the context of reviews. For information write Sheed Andrews and McMeel, Inc., 6700 Squibb Road, Mission, Kansas. 66202. Librm'y of Congre_ Gttalogiag in Publication Dm Lachmann, Ludwig M Capital, expectations, and the market process (Studies in economic theory) Bibliography: p. Indudes index. I. Austñan school of economics--Addreues, essays, lectures. 2. Economics--Addresses, euay_ iectures. 3. Capital--Addresses, essays, lectures. I. Title. II. Series. HB98.L3 330.15 77-1357 • ISBN 0-8362-0678-9 ISBN 0-8362-0682-7 pl_ The Science of Human Action This is Professor Mises's magnum opus. _ It is a magnum opus in every sense of the word. Its majestic sweep embraces almost the whole fidd of economics and touches, at some point or other, on almost every social issue of our time. Not merely the formal- logical apparatus of economic theory, but the social structure of modern industrial society, its achievements, its weaknesses, and, most of all, its ideologies come under the relentless'scrutiny of one who again and again confounds the smallminded within the precincts of our science and outside it. Perhaps his most out- standing merit is an intellectual courage which in these days of the cult of the "politically possible" has become all too rare. Throughout the 881 pages of the text the argument is presented with a pungency of style which rivals the clarity and vigour ofhis thought. To renderjustice to a work of this nature on the few pages at our disposal is dearly impossible. All we can hope to,do is to select a few topics for discussion. When ten years ago Professor Knight reviewed the original German version 2of the book in thisjournal s and found himself faced with the same dilemma, he selected one topic only for discussion, viz., the theory of capital. Quite possibly this is the best way of going about it. Undoubtedly the theory of capital occupies a prominent place in Professor Mises's doctrinal edi- rice. His theory of the trade cycle as well as bis proof of the inadequacy of some recent "models" for a socialist market economy depend largely on his view of capital. ThisarticleappearedinEcmondm18(November1951):412-27. 94 The Science o["Human /lction 95 Yet we shall not follow the method Profesor Knight adopted ten years ago. Unable though we are to take the reader on an extensive tour of the palace and to show hito every part of the building, it scems to us wrong to confine our insl_ction to the bascment. The wide vistas to be gained from some of the win- dows on the upper floors are too enchanting for that. Hunum dction is, of course, far more than a treatise on the methodology of the social sciences. But its centre of gravity certainly lies in its first seven chapters which are devoted to the discussion of method in the social sdences. We shaU therefore have to deal at some length with the issues raised in these chapters. 1. In the study of human thought on any subject it is a funda- mental principle that we cannot succeed in understanding what an author "really means" unless we understand the questions he is trying to answer. And an appraisal of Professor Mises's views on the methodology of the social sciences requires at least some knowledge of the history of the problems he is dealing with. In reading this book we must never forget that it ís the work of Max Weber that ís being carñed on here. Now, Max Weber's methodological writings had a dual pur- pose: to convince the historians who, at his time and in the German environment in which he grew up, were apt to claim a methodological monopoly for their "individualising" methods, that the social sciences offered justas much, if not more, scope for generalisation as the natural sciences; and that any historical "explanation" logically presupposes a generalised scheme of cause and effect. But at the same time he strove to uphold the methodological independence of the theoretical social sciences of the natural sciences by stressing the cardinal importance of mea-,,sand ends as fundamental cat¢gories of human action. work has been carried on by others besides Professor Mises. There is Profeuor Hayek's famom e_ay on "Scientism and the Study of Society," weU known to readers ofthisjournal. 4 96 Capital, Expectations, and the Market Process There is the work of Dr. Schtz who has applied Husserl's phenomenology to the logical analysis of the structure of human action) And there is, of course, Professor Robbins's Essay on the Nature and Significance of Economic Science (1932; 2nd ed. 1935), which firmly established the definition ofour science in terms of scarce means and multiple ends. It may be objected that this definition of the subject-matter of economics is too wide. At an election, for instance, each voter has one vote but more than one candidate to give it to; yet the problem is not usually regarded as an economic one. Professor Mises's reply to such objections is that in our search for the causes of the market phenomena we observe, and the explanation of which is the primary task of economists, we have unwittingly strayed into the realm of Praxeology, the Science of Human Action. He therefore distinguishes between Praxeology, the Science of Human Action, and Catallactics, the sdence which deals with market phenomena (233). The theorems of the latter presuppose the categoñes of the former. In other words, what Professor Hayek has called "The Pure Logic of Choice" belongs to Praxeology rather than to Catallactics. In this way what we have come to regard as the main body of economics is seen to belong to two related but disunct fields. "Catallactics is the analysis of those actions which are conducted on the basis of monetary calculation. Market exchange and monetary calcula- fion are inseparably linked together" (235). Professor Mises claims a pr/or/validity for the propogitions of Praxeology. "Its scope is human action as such, irrespectíve ofall environmental, accidental, and individual circumstances of the concrete acts. Its cognition is purely formal and general without reference to the material content and the particular features of the actual case .... Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a pr/or/. They are not subject to v¢ri.f'w.ationor falsifmation on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts. They area necessary t=equirement of an), intellectual grasp of historícal events" (32). At the same time_ The Science of Human Action 97 "Praxeology conveys exact and precise knowledge of real things" (39). These statements raise two fundamental questions: How can Praxeology at one and the same time beapriori true, and "convey knowledge of real things"? Secondly, even if no apriori validity is claimed for the propositions of Catallactícs, is it true that all the fundamental economic theorems that would clearly rail into the field of Praxeology are, like logic and mathematics, apriori valid? As regards our first question, we must remember that the"real things" about which we learn from Praxeology are human ac- tions. They can be studied in two ways: we can study them, as it were, "from outside," by observation and experience, like other phenomena of nature; or we can study them "from inside," that is to say, we interpret them as the products ofp/ans, as manifesta- tions of a directing and controlling mind. Looked at in this way all human action has a logical structure. There is therefore such a thing asa Logic of Action closely linked to the logic of our thought. We act by virtue of the fact that we think before. "The real thing which is the subject matter of praxeology, human action, stems from the same source as human reasoning. Action and reason are congeneric and homogeneous; they may even be called two different aspects of the same thing. That reason has the power to make clear through pure ratiocination the essential features of action is a consequence of the fact that action is an offshoot of reason" (39). Our second question raises a fundamental issue in epistemol- ogy. Ir is not merely a question of whether "means and ends" have the same epistemological status as, for instance, "time and space." Behind it there lurks the even more fundamental ques- tion whether we can have any knowledge not ultimately derived from expeñence. Fortunately this journal is not the proper place to raise such weighty issues in. Economica must not become a batfleground for positivísts and Neo-Kantians. It seems to us, however, that in this particular case it is possible to side with Professor Mises without taking sides on the wider issue. For we can, and in our opinion musL distinguish between different layers of experience. In 98 Caóital, Expectations, and the Market Process economics we are concerned with the action of the adult house- holder and the business man.
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