Praxeology: The Study of Human Action

Methodology is an incredibly important topic in economic science and it is what guides the totality economic understanding. Each school has their own methodology, most modern schools intertwine mathematical analysis with certain philosophical underlying truths or economic laws. A mathematical approach to economic analysis has been most vigorously criticized by the Austrian school of economics which has adopted a form of methodological subjective-individualism called praxeology. Praxeology was first coined by the philosopher Alfred Espinas in his Revue Philosophique but has been introduced and expanded most fully by the Austrian school economist Ludwig von Mises. Von Mises came from a school of thought that shunned mainstream methodologies and proclaimed ordinal subjective value theory as true economic analysis. This introduction to subjective valuation led von Mises to dwell into a more sophisticated use of such methodologies and thus, expanded on such theories developing a concise understanding of praxeology.

The father of the Austrian school of economics and one of the main developers of marginality in economic theory was the Viennese economist Carl Menger. In developing a new approach to economic analysis, Menger divided himself from other "continental" schools of economics and more specifically the German Historical school of economics. The German Historical school sought to explain economic science via the study of history and trends in statistical analysis with respect to economic data. The Vienna school believed that it is only through deductive logic and the discovery of certain economic laws that economics could be understood. What is lost in this empirical process of "theory" creation is the knowledge that in other epochs there may have been different scenarios that have arisen. In essence, no economic theory can be based on statistical data gathered from a single or even multiple occurrences.

Empirical data is powerful in identifying problems and may also possibly prove certain theories not to be incorrect, proving them in the negative. That said, empirical data and statistical analysis can not prove economic theory in the positive sense and can not give any detailed contributions to economic theory. The latter is a view shared by Hayek in his monumental work Prices and Production and Monetary Theory and the Trade Cycle as well as Ludwig von Mises in his opus magnus Human Action. Hayek in Monetary Theory and the Trade Cycle on page 31 cites the once well-known economic statistician and empiricist E. Altschul stating that "in economics, especially, the final decision about the significance of a certain phenomenon can never be left to mathematical and statistical analysis. The main approach to research must necessarily lie through theoretically obtained knowledge." Statistical data can not be relied upon to form economic theory and the events of a specific era can not be generalized to all occurrences. A true economic theory is applicable to all circumstances.

In an attempt to divide themselves from the Vienna school during what has come to be called the Methodenstreit, the German Historical School labeled the Vienna school the Austrian school of economics. This is where the name originated, differences in methodologies and an adherence by Carl Menger in his Principles of Economics and his students to subjective-individualist analysis. Menger and the "Austrian" school believed that only through understanding the actions of rational man and observing marginal changes in economic phenomena can economic science be expounded.

As time passed, the Austrian school further developed its methodologies and constant belief that the acting man is the crux of economic analysis. Ludwig von Mises, Bohm-Bawerk's greatest student, went on to be the heir of the third generation of Austrian school economists and thus further developed Austrian school methodology into a more concise version of Espinas' praxeology. Rothbard states in Man, Economy, and State that praxeology "takes as its fundamental premise the existence of human action. Once it is demonstrated that human action is a necessary attribute of the existence of human beings, the rest of praxeology (and its subdivision, economic theory) consists of the elaboration of the logical implications of the concept of action." This logical implications are that

"1) Asserting A- the action axiom. In essence, that all humans act.
2) If A, then B; if B, then C; if C, then D, etc.- by rules of logic.
3) Therefore, we assert (the truth of) B, C, D, etc."

These are the rules of logical deduction that come from the assertion that humans in fact act. If we believe that humans act then we can claim and prove various other fundamental truths that are vital to economic analysis. Praxeology asserts that humans act to meet certain ends and does not value these ends. Austrian methodology is "value-free" and does not claim that certain ends are inherently better than others but that they are all ends; these claims can and are made by other fields such as philosophy and psychology. Praxeology can be used to deduce such economic laws as the law of marginal utility and the law of diminishing returns. The law of marginal utility does not depend on physiological or psychology grounds (the belief that the more of an item that is consumed the more "satisfied" the individual is) but instead relies on the fact that individuals will use the first amount of a good consumed to their most urgent need, the second amount of a good is used to their second most urgent need, the third to their third most urgent need, etc. The productivity or use-value of these goods fall as the quantity increases due to the fact that each additional amount of the good is used to satisfy a less and less urgent need. Praxeology then, Rothbard states, includes the study of the "isolated man (Crusoe economics) and, especially elaborate, the analysis of interpersonal exchange (catallactics)."

In a nutshell, praxeology is the study of human action and that man value certain ends and therefore engage in select means to reach those ends. Praxeology and human action can not be elaborated further at this time but it is the crux of Austrian methodology. Praxeology is a study in itself and is but a tool of Austrian economists to guide economic thought in a direction so that certain positions are made on given issues. Praxeology is not an end to economic science but a means to understanding the totality of economic phenomena.