 Thank you very much, D.L. Gulch in their hands. Thanks so much for this invitation. It's a great pleasure to be with you and with all the distinguished guests which you have again succeeded in bringing to Bordom for the 16th conference. My topic is the Ultimate Foundation of Economic Science. It's the last book, authored by Ludwig von Mises, published in 1962. It's a book dealing with methodology and heavy subjects such as the philosophy of science and philosophy of knowledge and so on. Therefore, my wife thought it would be a good idea to make it light and peppy. So, therefore, I dressed in a Bermuda way. I also thought, okay, let's start maybe to bring you into the philosophy topic with a few jokes, okay? What's the difference between a philosopher and an engineer? About 100,000 per year. And then, of course, we have another one, right? So, there are two freshman philosophy students who see the following bulletin posted on the wall of their lecture hall. One more? Yeah, that's it. Crash course in logical assumptions. Today, Bordom, 1530, okay? Neither of them knows what it means and they're both curious. The pair decide to find the professor and ask some questions. When they locate the professor's lecture hall, the boulder of the two enter the building while the other remains outside. So, I didn't fully prepare it because ideally it would have been somebody else walking in. Sir, what does crash course in logical assumptions mean? Well, it involves taking information that you have, forming assumptions using logic, and then creating new information. Let me try to answer your question by asking you a question. Do you own a car? Oh, yes, I do. Well, then I can now logically assume that you drive. Oh, yes, I drive on weekends, I go out on dates. Then I can logically assume that you have date partners. Oh, yes, yeah, I have a girlfriend. Then I can logically assume that you are heterosexual. Oh, hell, yes, I think I understand what this is all about. Thanks a lot for your time, professor. So, he walks out and sees his friend at the exit and the other guy asks him, so what's it all about? Well, it's about using information and stuff. Let me answer your question by asking you a question. Do you own a car? No, you're a homosexual. So, this is not how Mises got into the study of epistemology as you might have guessed. So, we'll talk a little bit about the origins of Mises' work on methodology and then zoom in on his system of thought. As far as these issues are pertain, the social sciences as compared to the natural sciences. And then finally, I'll say a few words about the ultimate foundation of economic science. So, Mises got into the study of epistemology, philosophy and methodology, not out of, I mean, he was very widely read and he was, I mean, you just have a look at this library. It's today located at Hillsdale College in the United States. You see, it was very widely read in philosophers, many distinguished philosophers as friends, for example, Louis Rougier. Now, Mises would not probably have never started writing on this unless he had been challenged on these grounds, unless economics, precisely the practical conclusions of economics had been challenged on these grounds. And the challenge came in the form of an outright rejection of the scientific status of economics. The first time this kind of argument was brought forth was in the middle of the 19th century by Marx. Mises discusses this in human action under the heading of polylogism. Marx had argued, in fact, that the economics developed by, economic science developed by the classical economics was a bourgeois science. Now, unfortunately, the structure of the bourgeois mind is completely different from the structure of a proletarian mind. Therefore, all this talk was just, nonsense was just gibberish. It is not the slightest relevance for a proletarian society. So we don't have to worry about all of this. And then in Mises' day, there was a warm-up of the same conception in the form of the so-called sociology of knowledge. And the sociology of knowledge started from the same premise, namely that human minds are structured differently. And therefore, whatever people think is just a reflection. It's a necessary product of their class situation and of their history and so on. It has not the slightest relevance for other people. So whatever objections and arguments people like Mises and later the Milton Friedman and Murray Rothbard and so on, and Hans-Saman Hoppe might bring up, it just doesn't count. It's just empty talk. And of course, it's a necessary consequence of Marx's overall pretensions that all causality is exercised by material forces. So Marx believed as various weak philosophers in antiquity, he believed in materialism. All things that exist in all thoughts, also in all human actions, have ultimately material causes as their origin. So it's always physical chemical process. This prompted us to think, talk and speak and argue in the way we think and talk and speak. Now if this were true, this is the point that Mises brings up in the ultimate foundation of economic science, well then of course you ultimately come to reject any notion of truth. It makes no more sense to distinguish between truth and falsehood at all because whatever I say is just the product of my genesis and whatever you say or whatever you think is just the product of your genesis. And it makes no sense to say, well this is wrong and this is false, it's just what it is. And it has no relation, no relation of any sort to the world outside of us. I'll come back later on at this point. So this was really what prompted him to look into this in more detail. I mean what is the problem here at stake? And what he found was that in fact the epistemology of the social sciences in economics in particular was very strongly underdeveloped as compared to the theory of knowledge pertaining to the natural sciences, physics, chemistry and so on. In fact by his days in the 1920s there was such a preconception of prevalent that the only sciences that were really sciences were in fact the natural sciences precisely because they were dealing only with material factors. Now one further. So Mises could rely now in his study on a half a century almost of epistemological discussions that had taken place after the middle ages in which the mystic thinking, so real philosophical realism paled sway. So the modern period was characterized by English nominalism. Now I don't define all of these terms but I'll be glad to answer to define them in more detail later on because otherwise it would take too much time. Right then we have the French Enlightenment. The French Enlightenment was pre-processed with the idea that all scientific knowledge is knowledge of the type of the natural laws. And in fact the French revolutionaries were absolutely convinced of materialism. And therefore they tried for example to use the legal code to social engineer French society according to their taste. The origin of social engineering is really in the French Revolution. A colleague of mine at the University of Angers by the name of Xavier Martin. He is a professor of the history of law. He has documented this in painstaking detail. So if any of you read French I recommend that you take a look at this. He has done a marvelous job at demonstrating this beyond the shadow of a doubt that this was in fact the conception that infused all of Enlightenment thinking. Now after the French Enlightenment we had Auguste Comte. So he was the first one to articulate really an imperialism of the methodology of the natural sciences for all other sciences. And so he promised that in the future we would have something of a social science which he called sociology. He invented the word sociology just as he invented the word altruism. There are various others. So altruism rather than charity, sociology rather than economics. You always get rid of things that you don't like. You put a completely new discipline and new conception, new attitude in its place. We'll talk a little bit later about Comte as well. Then after Comte comes logical positivism. So this was the beginning of the 20th century and then into the 1920s. And these were the contemporaries of Mises in Vienna. So sometimes the logical positivists are called the Vienna circle. And they held that the only source of scientific knowledge is empirical analysis in laboratory settings and all other things were just blah, blah. But Mises could also rely on three other most important sources of information. Namely the Southwest German School of Historiography. So this was a reaction against Comte, against the positivism of Comte. And so these German historians had said, wait a minute. I mean what we are doing in our research and our analysis has nothing to do with the procedure of the natural sciences and in fact we could not get to our results if we relied on the methods of the natural sciences just on observation because we are dealing with meaning. We are dealing with what prompts people to make the decisions that they make, how they see the world, how they see their options, and sometimes of course they are wrong and so on. But this is part of what we are dealing with. We are dealing with meaning. And meaning is not something that is observable. It needs to be understood by talking to people, reading what they write and other things. So the methods are not all the same. And reading a text is not like observing something in a laboratory setting. You need to understand the meaning. The letters as such don't give you the meaning. You need to understand the language of the culture. So Mises could rely on this, but he could also rely on economic science, which he had studied for a very long time, which he mastered. And as he himself would say, the best way to, in fact, probably the only way of ever saying something meaningful about epistemology and methodology is to master yourself, the science first. And he observes that the great contributions to the theory of knowledge in the natural sciences were made by the practitioners. They were made by Galilei and Newton and Lavoisier and not made by the theoreticians. So whatever Kant had to say about this in Bacon and so on was just, the river was just really uninformed because they were not practitioners. So you need also be a good economist to be a good philosopher of economics. And lastly, well, there was the tradition, or you need to do further down. Yeah, and one more. And one more. Lastly was the distinguished series of economics, an economist's logicians that had started reflecting and writing about the particular features of economic science. What were the characteristic features of the science as compared to the natural sciences? And here we have, in particular, Waitley was an Irish bishop, an economist, John Sr., John Stuart Mill, Corinth and Keynes. So this is John Neville Keynes. John Neville is the father of John Maynard. He was a decent economist. And then lastly, there was also Carl Menge, who, in his 1883 book with the inquiry into the methods of the social sciences and economics in particular, had made the case for the existence of universal and exact economic laws. So economic laws were truly universal. So not just generalizations from historical experience, which held as a rule or contingently, but they were universal and exact. So Mises could rely on sorts of this sort. He himself would then present his reflections on methodology in four major publications. The first one was, Grundlagen der Nationale Ökonomie, has been translated in 1960 by George Reisman and published by von Nostrand Company and has been republished in 2003 with an introduction by a very talented young economist. And the next book was, Nationale Ökonomie, Respectively Human Action. Then we have Theory and History in 1957, which has recently been translated also in German, and has a very, very powerful book. So for those of you who have a philosophical fiber, that's the book to read by Mises. And then last but not least, Ultimate Foundation, the subject of our little presentation today. Now what we find in Mises is a new synthesis. So Mises conceives of science as knowledge of causal relationships between things of a certain type, classes of things, which is acquired by methodical research and research pertaining both to the natural sciences but also to social sciences. So in German we have this word Geisteswissenschaften. And in Mises' day, they still covered everything that was not purely mechanical. So these were the guys who had something to do with human action. And then the knowledge of these things and their causal relationships allows them to explain observed things of that type. Now the sources of information are logic and senses, and it is these sources of information that characterize scientific knowledge in Mises' conception. So when he uses the word scientific as science, he refers to the fact that, well, the knowledge that we have refers to something that we know through logic, that is through reflection on the logical structure of our mind, the way it works, and through information that comes through sense experience. It doesn't exclude that there be other sources of knowledge. So some people believe that there is a God, it's a triune God and so on, and this might be wrong, or it might be right, it might be right or wrong. And in the case it's right, so it would be knowledge, but in the A case it's not scientific knowledge. So it's not science. Now the important point of his system is the dualism between the natural sciences and the sciences of man, and the result from the fact that as far as nature, in animate nature is concerned, there's a strict regularity, there's a strict sequence of cause and effect and a rigid relationship, there's a constant relationship between cause and effect. So whenever we let drop a certain object, it will fall, so there's no exception, besides because the object doesn't choose. Whereas as far as human action is concerned, in animals we have reaction, so the reaction is always according to a predictable pattern, so there's no choice. Wherever there is choice, we need to apply different methods. We can no longer start from the premise that there must be a constant relationship between one event and a follow-up. So my reaction to good weather today might be different, but it's different from my reaction to good weather tomorrow. My reaction to a bad joke today will be different from a reaction to a bad joke tomorrow, etc. There are no constant relationships and that's the reason, of course, why Mises rejects the application of quantitative methods in economics and in the social sciences because it is clear from the outset that what you are looking for cannot exist as far as human action is concerned. Now, Mises then distinguishes, based on this dualism between loss of nature, so physics, chemistry, geometry, geology, etc., where we have the reign of these universal laws. So these laws are found through empirical investigations, laboratory experiments and so on. And so what we do in the natural sciences is that we deal with individual facts under the hypothesis that whatever we observe in a singular instance is just an instantiation of a general relationship that we'll hold true at all times in all places. So if I observe the fall of a bottle today in a laboratory experiment setting in Bodrum, I do this with the hypothesis that, well, what I will find will be the same relationship that we'll hold true in Zurich and in London and in New York and so on at different times. It's just a universal law. So I can approach an individual fact with the expectation of finding a universal relationship. Now in economics, in economic laws economic laws are also universal, but we cannot unearth them through examination of an individual case. Rather, I see out of the way around, the universal laws of economics result from the fact that the human mind, that what prompts us to act and that what creates activity, human activity, human behavior is directed by a human spirit which is structured in a certain way. So the human spirit pursues objectives and chooses between different objectives, different possible objectives, chooses between different means to attain his objectives. He values between things that are more important, less important. He has a notion about what it means to succeed and what it means to fail. All these are categories that we cannot observe but that we find if we reflect and how we go about when we act. And so as a consequence, these same categories allow us to interpret observations that we make but it's not the observation itself that would provide this kind of information. We get the information about the categories of human action by reflecting on our own mind. And so based on this sort of procedure, we get universal and exact laws, so we get them not through observation but through armchair reasoning. So we sit and reflect calmly and this gives us various a priori laws. The quantity theory of money, the laws of return, the increased physical productivity resulting from the division of labor, the increased physical productivity of capital accumulation and various other things. Now, there is a third discipline which is history. In historical research, and here Mises picks up from the southwest German school of historiography, in history we are dealing with contingent causes and consequences of human action. So for example, we have a hot day today so my reaction might be to drink water but this reaction is in no way universal. Tomorrow or in an hour, I might choose to drink half a beer. In another instance, I might just choose to avoid the heat as far as possible and stay inside. And then there are contingent sequences of choices. I see another person, there's a hot day, I see another guy drinking water, I drink water too. Or it's a hot day, I see another guy drinking water, I say, ooh, how disgusting, I better have a beer, et cetera. So our reaction to the objective context of our action, of our behavior is not predetermined by that context itself. In any case, so now what's the explanation for this? We could say, well, there's liberty of action, there's freedom of choice, so we are free to an extent. Yes, but Mises would say this is a metaphysical explanation. It's not something that we know through reasoning and that we know through our senses. What we know is that we do make choices. We always have motivations, the motivations are not the same. Where do our motivations come from? Well, actually we don't know. Sometimes we have some cling on this, but we have an imperfect explanation of this. Why do we in some situation behave in this way, in another situation behave in a different way? We can and we do, why? Well, maybe it's because of freedom of choice. Maybe it's just we haven't yet found out how all our choices are determined by physical, chemical reactions in the body and so on. He leaves this open, says we cannot answer this question. Based on scientific information, we just don't know. Okay, that's Mises' take on this. So in historical explanations, we combine both universal elements, laws of nature and economic laws, and contingent elements. So the historian really brings it together. It's a little bit like the lawyer. He brings all elements, everything that bears on this case together. And his main interest is in identifying the elements that make the situation unique. So he's dealing with individual facts, like in the natural science as well. We're dealing with individual observations, but his approach is very different. He wants to unearth meaning, which the physicists and the chemists cannot. It's not interested. It's not his business. But he wants to find meaning. And so he needs to get to something that he can only get through understanding the motivations of that person. It's neither natural laws nor economic laws that give him these individual elements. So he needs to apply specific understanding. Okay, we move on to the ultimate foundation of economic science. So what we find here, just a few preliminaries about this book, right? The book is not meant to present a philosophy or, I said before, as a system of methodology. Yes, but he doesn't say, well, I'm presenting my philosophy. I'm presenting, say, he says, on the opening page, he wishes to expose certain ideas that any attempts to deal with the theory of knowledge ought to take into full account. So he wants to highlight certain facts about economics as a sign, social sciences more generally, and considerations of a logical sort against logical positivism and other doctrines that contest the scientific character of economics. So whoever builds a philosophy of knowledge of all sciences has to take them into account. And that presupposes that we need to know other sciences. We need to know other sciences fairly well. This is very, he says, there's no contact with the state and there's no legal guarantee of what belongs to us and what is our own untouchable property. No, this is not Mises. Professor, you get sometimes confused. Ah, yeah. The study of economics, says Mises, has again and again been a led astray by the vain idea that economics must proceed according to the pattern of other sciences. The mischief done by such misconstructions cannot be avoided by admonishing the economists to stop casting longing glances upon other fields of knowledge or even to ignore them entirely. Ignorance. Whatever subject it may concern is in no case a quality that could be useful in the search of truth. What is needed to prevent a scholar from garbling economic studies by resorting to the methods of mathematics, physics, biology, history or jurisprudence is not sliding and neglecting these sciences, but on the contrary, trying to comprehend and to master them. He who wants to achieve anything in praxeology must be conversant with mathematics, physics, biology, history, jurisprudence, lest he confuse the tasks and the methods of the theory of human action with the tasks and methods of any of these other branches of knowledge. Okay, that's quite a program. Now, Mises then got the objection from a student. When I once expressed his opinion in a lecture, a young man in the audience objected, you are asking too much of an economist, he observed. Nobody can force me to employ my time studying all these sciences. And his answer was, nobody asks or forces you to become an economist. Right? So you need to understand the other sciences. Of course, you need to understand your own. He says, well, the actual contributions to economics have been made by good economists. We move on to the next slide. Yeah, next. Okay, a few highlights from the book because I have four and a half minutes to go. First one is that Mises makes the case that any knowledge has a practical dimension. Therefore, the praxeological a priori, what we know about human action is part of all scientific endeavors. And this, of course, is also what Hans-Simon Hoppe had found out in his own doctoral dissertation and in the course of which he came across Mises. So he had the same idea and had a distinguished predecessor who doesn't diminish in any way Hans's contribution. He made lots of contributions to the same topic. So praxeology provides the ultimate foundation of science. The ultimate foundation of economic science starting with economics because so far the epistemologists have not taken account of the particular features of economics. And not only is this a branch of knowledge that is somehow also important, needs to be taken account of in order to complete the picture, it is in a way the most fundamental science because all knowledge itself is activistic and therefore the categories of human action also apply to scientific to any intellectual activity. Second point is this refutation of positivism. Positivism isn't being the idea that the only source of scientific knowledge is empirical information. And that all theoretical constructs are either without the slightest scientific value or are just tautologies. So it's just definitional games. And Mises crushes this with a slight observation that if you apply this doctrine to itself then it turns out it is not a scientific doctrine because the idea that there are only two sorts of propositions either you have these analytical empirical statements in which you find out something about the real world or in the rest it's just blah blah. But then clearly this doctrine itself is not found out empirically. It's not based on an observation. So it must be blah blah. So positivism is self-contradictory and in its extreme form of materialism as I've said in my introductory comments it leads to the outright rejection of any notion of truth and falsehood and therefore it must lead to utmost skepticism. Everything that we think and that we say that we hear other people say is just an outgrowth of their individual genesis. It has no meaning to say well this is true or false is just what they blah blah. It cannot be true or false. But in that case of course skeptical and apathetic but it's just part of the cosmic becoming and going and so on has no significance or if I'm of the more activist type then I need to make sure that the right opinions which are my own somehow get a better here so therefore you start to eliminate people who think not like yourself. Now this brings us to lots of connection points in the present day. Now critique of statistical research I'll jump this but I should like to highlight the next point the critique of quantum physics which you find on pages 22 to 24 of that book of my edition here which is not the same that I've given before it's the 1996 edition. So Mises says here that in quantum physics we are unable to determine the location and movement of individual electrons according to the principles of Newtonian dynamism we cannot determine it exactly we can determine it only stochastically and Mises says well okay that's the present state of our knowledge it does not follow there from that there is no determination of these natural events because there seems to be a contradiction between this finding it's only stochastically determined and on the other hand the position of the ultimate things like all changes follow a regular pattern without any exception so it says okay presently we don't know why they behave exactly in each single case like this but this is just efficient knowledge it's because we are reasoning under the hypothesis that we have already found the ultimate we were reasoning in terms of we have electrons and protons and neutrons but maybe there are subdivisions and probably there are subdivisions and there are subclasses of objects we will find the exact determination wonderful argument of an a priori or a nature okay and then finally science, metaphysics and religion I've said already before that Mises distinguishes science from metaphysics and religion which does not mean that he disparages metaphysics and science so he writes for example here to live in a universe with whose final and real structure what is not familiar or not perfectly familiar creates in itself a feeling of anxiety to remove this anguish and to give man certainty about the last things has been from the earliest days the solicitude of religion and metaphysics so they fulfill a role that science cannot fulfill and science cannot go there by its very nature that this is undignified or not important the human mind in its search for knowledge resorts to philosophy or theology precisely because it aims at an explanation of problems that the natural sciences cannot answer philosophy deals with things beyond the limits that the logical structure of the human mind enables man to infer from the exploits of the natural sciences so in conclusion I have one other thing so I wanted to criticize me but my time is running out so I'll bring up this point if you are interested in the question and answer period in conclusion let me just become light and peppy again and consider the situation of a mountain climber who suddenly slips and is just able to hold on to a tiny edge on a very high cliff as his strength weakens he looks desperately at the sky is there anybody up there and a booming voice comes yes what should I do say a prayer and let go and the climber the climber after a moment's thought says is there anybody else thank you for your attention