 It is well known that Austrians disagree strongly with other schools of economic thought such as the Keynesians, the monetarists, the public choices, historicists, institutionalists and Marxists. Disagreement is most conspicuous, of course, on the level of economic policy and policy proposals. At times there also exist at this level an alliance between Austrians and in particular Chicagoites and public choicers. Mises, Friedman and Buchanan, to just cite a few names, are often united in their effort to defend the free market against its liberal and socialist detractors. Nonetheless, such occasional agreements invariably turn out to be only superficial ones at closer inspection. It is good to encounter such agreements and for strategic and tactical reasons it may be important to stress their existence. Yet there should be no illusion about the fact that these agreements essentially cover up some truly fundamental differences between the Austrian school as represented by Mises and all the rest, the ultimate difference from which all disagreements at the level of economic theory and economic policy stem. These agreements, for instance, as regards the merit of the gold standard versus fired money, free banking versus central banking, the welfare implications of markets versus state action, capitalism versus socialism, the theory of interest and the business cycle and so on and so on, is in regard to the answer to the very first question that any economist must raise and that is what is the subject matter of economics and what kind of propositions are economic theorems. Mises' answer is, and it is my task here to explain and justify this answer as good as I can, that economics is the science of human action which in itself may not sound very controversial, but when Mises then in the following says this and I quote, its statements and propositions are not derived from experience. They are like those of logic and mathematics, a priori. They are not subject to verification and falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts. They are a necessary requirement of any intellectual grasp of historical facts, end of quote, then this becomes of course controversial. And in order to emphasize the status of economics as a pure science, a science that has more in common with a discipline like applied logic than for instance with the empirical natural sciences, Mises proposes the term praxeology that is the logic of action for the branch of knowledge exemplified by economics. It is this assessment of economics as an a priori science, a science whose propositions can be given a rigorous logical justification which distinguishes Austrians or more precisely Misesians from all other current economic schools. All other schools conceive of economics as an empirical science, as a science like physics, which develops hypotheses that require continual empirical testing. And they all regard a statement such as Mises that the economic theorems like the law of marginal utility or the law of returns or the time preference theory of interest in the Austrian business cycle theory can be given some definite proof such that it can be shown to be plain contradictory to denies their validity as dogmatic and unscientific. Let me quote Mark Blok here as a highly representative mainstream methodologist of economics to illustrate this almost universal and complete opposition to Austrianism. As regards Mises, Blok writes, and I quote, his writings on the foundations of economic science are so cranky and idiosyncratic that one can only wonder that they have been taken seriously by anyone. That's the end of the quote. I will explain in some detail in my lecture tomorrow just how dogmatic and cranky such an empiricist response to Mises is. Blok incidentally does not provide a single argument to substantiate his outrage over the Misesian idea of praxeology. His chapter on Austrianism simply ends with the quote that I just gave. There is no comment, no explanation, no justification whatsoever. I hope to make it clear today and in my other lectures that the true reason for most present-day economists such as Blok's rejection of Misesian a priorism is in fact that the demanding standards of argumentative rigor, which an a priorist methodology implies just proved to be too much for them. In any case, let me return to Mises and praxeology and let's keep Mark Blok wondering. What led Mises to his characterization of economics as an a priori science? From the present-day perspective, it might be surprising to hear that Mises certainly did not think his description was out of line with the mainstream view prevailing in the early 20th century. Mises did not wish to outline a plan for a new science of economics, so to speak, or to prescribe what economists should be doing as opposed to what they actually were doing. No, he saw his achievement as a philosopher of economics only in systematizing and in making explicit what economics really was and had implicitly been conceived of by almost everyone who called himself an economist. And such is indeed the case. Well, I think that Mises' achievement of giving a systematic explanation of what was formally only implicit in unspoken knowledge can hardly be overrated. And while it is also true that in the course of this, Mises introduced some conceptual and terminological distinctions that had been unclear and unfamiliar, at least to the English-speaking world. His position regarding the status of economics was essentially in full agreement with the Zen Orthodox view on the matter. They did not employ the term a priori, but such mainstream economists as, say, senior, carets, for instance, describe economics quite similarly. Say writes, for instance, and I quote, that political economy is composed of few fundamental principles and of a great number of corollaries or conclusions drawn from these principles that can be admitted by every reflecting mind. End of quote. According to senior economics, and I quote again, depends more on reasoning than observation. The economists' premises consist of a few general propositions, the result of observations or consciousness, and scarcely requiring proof or even formal statement which almost every man as soon as he hears them admits as familiar to his thought, or at least as included in his previous knowledge. And carets remarks, the economist starts with a knowledge of ultimate causes. We have at our disposal direct knowledge of causes in our consciousness of what passes in our minds, and in the information which our senses convey, or at least are capable of conveying to us of external facts. Thus, the economist is at the outset of his researches already in possession of those ultimate principles governing the phenomena which forms the subject of his study. So much about carets. The view of Mises Austrian predecessors, Menge, Böhm, Bawerk and Wieser, are the same. They too describe economics as a discipline whose proposition can, in contrast to those of the natural sciences, be given some ultimate justification. Again, however, they do not use the same terminology as Mises. And finally, that Mises epistemological characterization of economics was also regarded as quite orthodox after being explicitly formulated by him, and certainly not as an idiosyncratic view as Bloch would have it, is revealed by the fact that Lionel Robbins' book, The Nature and Significance of Economic Science, which appeared first in 1932, and which was respected by the economics profession as their guiding methodological star for almost 20 years, is nothing but a somewhat watered-down version of Mises' description of economics as praxeology. In fact, Robbins, in his preface, explicitly singles out Mises as the most important source for his own methodological position, and Mises and Striegel, whose position is essentially indistinguishable from Mises, are cited approvingly in the text more often than anyone else. Yet illuminating as this may be for an assessment of the present-day situation, all of this is, of course, only history. What then is a rationale behind the classical economists regarding their science as different than, for instance, the natural sciences, and behind Mises explicitly reconstructing this difference as one between an a priori science and an empirical or a posteriori science? It was the recognition that the process of validation, the process of finding out whether or not some proposition is true or not, is categorically different in one field of inquiry than in the other. Let us briefly look at the natural sciences first. How do we find, for instance, or how do we know, for instance, what the consequences will be if we subject some nature-given material to specified tests? Let's say if we mix it with another kind of material. Evidently, we do not know before we actually try it out and observe what happens. We can make a prediction, of course, but our prediction is only a hypothetical prediction, and observations are required in order to find out if we are right or wrong. Moreover, even if we have observed a definite outcome, let's say that mixing the two materials leads to an explosion, can we then be sure that such an outcome will invariably occur whenever we mix such materials? Again, the answer is no. Our predictions will still and permanently be hypothetical, for it is possible that an explosion will only result if certain other conditions, A, B, C, whatever, are fulfilled, and we can only find out whether or not this is the case and what these other conditions are by engaging in a never-ending trial-and-error process which enables us to improve our knowledge progressively regarding the range of application for our original hypothetical prediction. Now, let us turn to some typical economic propositions. What about the validation process of propositions such as these? Whenever two people, A and B, engage in a voluntary exchange, they must both expect to profit from it, and they must have reverse preference orders as regards the goods and services exchanged, such that A values what he receives from B more highly than what he gives to him, and B must evaluate the same things the other way around. Or whenever an exchange is not voluntary but coerced, one exchange party profits at the expense of the other, or takes the law of marginal utility, whenever the supply of a good whose units are regarded as of equal serviceability by a person increases by one additional unit, the value attached to this unit must decrease as this additional unit can only be employed as a means for the attainment of a goal that is considered less valuable than the least valuable goal satisfied by a unit of such good if the supply were one unit shorter, or takes a Ricardian law of association. If of two producers, A is more productive in the production of two types of goods than is B. A and B can still engage in mutually beneficial division of labor because physical productivity would be higher if A specialized in producing that good with respect to which his higher efficiency is relatively more pronounced, and left to be the production of that good with respect to which his lower efficiency is relatively less pronounced rather than both A and B producing both goods separately and autonomously. Or as another example, whenever minimum wage laws are enforced that require wages to be higher than existing market wages, involuntary unemployment will result. Or as a final example, whenever the quantity of money is increased rather demand for money to be held as cash reserve on hand is unchanged, the purchasing power of money will fall. Now considering such propositions, is the validation process involved in establishing them as true or false of the same type as that involved in establishing a proposition in the natural sciences? Are these propositions hypothetical in the same sense as a proposition regarding the effects of mixing two types of natural materials? Do we have to test these economic propositions continuously against observations and does it require a never ending trial and error process in order to find out and gradually improve our knowledge regarding the range of application for these propositions such as we have seen it to be the case in the natural sciences? It seems to be quite evident and indeed except in the last 40 years or so it has been regarded as such by almost all economists that the answer to these questions is a clear and unambiguous no. Clearly that A and B must expect to profit and have reverse preference orders follows from our understanding of what an exchange is and the same is the case with respect to the consequences of a coerced exchange. It is inconceivable that things could ever be different. They were so a million years ago and they will be so a million years hence and the range of application for these propositions too is clear once and for all. They are true whenever something is a voluntary or a coerced exchange and that is all there is to it. There is no difference with respect to the other examples that I have given that the marginal utility of additional units of supply of homogeneous goods must fall follows from the incontestable statement that every acting person always prefers what satisfies him more over what satisfies him less. It is simply absurd to think that continuous testing would be required to establish such a proposition. The Ricardian Law of Association along with the once and for all delineation of its range of application also logically follows from the very existence of the situation as described in the law. If A and B differ as described and accordingly there exists a technological substitution ratio for the goods produced then if A and B engage in a division of labor as characterized by the Ricardian Law the physical output produced must be larger than it otherwise would be any other conclusion is logically false and the same is true regarding the consequences of minimum wage loss or an increase in the quantity of money an increase in unemployment and a decrease in the purchasing power of money are consequences which are logically implied in the very description of the initial conditions as stated in the propositions at hand as a matter of fact to regard predictions such as the rise in unemployment and the inflation as hypothetical predictions and to think that their validity could not be established independently of observations that is other than by actually trying out minimum wage loss or printing more money and observing what happens then is outright absurd. To use an analogy here it is as if one wanted to establish the theorem of Pythagoras by actually measuring sides and angles of triangles along the same line as one would have to comment on such endeavor couldn't we say that to think that economic propositions would have to be empirically tested was merely a sign of intellectual confusion but Mises by no means only notices this rather obvious difference between economics and empirical sciences he makes us understand the nature of this difference and helps us explain how and why such evidently unique discipline as economics that teaches us something about reality without requiring observations can possibly exist in order to better understand his explanation I must make a brief excursion into the field of philosophy more precisely into the field of the philosophy of knowledge or epistemology and here in particular to the epistemology of Immanuel Kant as developed above all in his critique of pure reason for Mises position his idea of praxeology is clearly influenced by Kant this is not to say that Mises is plain and simply a Kantian as a matter of fact I will point that out a little bit later Mises carries the Kantian epistemology further beyond the point at which Kant himself left off and improves the Kantian philosophy in a way that to this very day has been completely ignored and unappreciated by orthodox Kantian philosophers nonetheless Mises takes from Kant his central conceptual and terminological distinctions as well as some fundamental Kantian insights into the nature of human knowledge and thus we have to turn to Kant for a few moments Kant in the course of his critique of classical empiricism in particularly that of David Hume developed the idea that all our propositions can be classified in a twofold way on the one hand they are either analytic or synthetic and on the other they are either a priori or a posteriori the meaning of these distinctions is in short the following propositions are analytic whenever the means of formal logic are sufficient in order to find out whether they are true or not otherwise propositions are synthetic once and propositions are a posteriori whenever observations are necessary in order to establish their truths or at least confirm them and if observations are not necessary then the propositions are called a priori the characteristic mark of the Kantian philosophy is the claim that true a priori synthetic propositions exist and it is because Mises subscribes to this claim that he can be called a Kantian synthetic a priori propositions are those whose truth value can be definitely established even though in order to do so the means of formal logic are not sufficient though of course necessary and observations are unnecessary according to Kant mathematics and geometry provide examples of true a priori synthetic propositions yet he also thinks that such a proposition as a general principle of causality that is the statement that there are time invariantly operating causes and every event is embedded into a network of such causes is a true synthetic a priori proposition I cannot go into great detail here to explain how Kant justifies this view a few remarks will have to suffice first what is it from which the truth of such propositions is derived if formal logic is not sufficient and observations are unnecessary Kant's answer is that their truth follows from self-evident material axioms what makes these axiom self-evident Kant's answer is that they are self-evident not because they are evident in a psychological sense that is because we would be immediately aware of them on the contrary Kant insists that it is usually much more painstaking to discover such axioms than it is to discover some empirical truth such as that the leaves of trees are green what makes them self-evident is rather the fact that one cannot deny their truth without self-contradiction that in attempting to deny them one would actually implicitly admit their truth how do we find such axioms here Kant answers by reflecting upon ourselves by understanding ourselves as knowing subjects and this fact that the truth of synthetic a priori propositions derives ultimately from inner reflectively produced experience also explains why such propositions can possibly have the status of being understandable as necessarily true observational experience can only reveal things as they happen to be there is nothing in it that would indicate why things must be the way they are contrary to this however writes Kant our reason can understand such things as being necessarily the way they are and I quote which it has itself produced according to its own design in all this Mises follows Kant yet as I said earlier Mises adds one more extremely important insight that Kant had only vaguely glimpsed it has been a common quarrel with Kantianism that this philosophy seemed to imply some sort of idealism for if as Kant sees it synthetic a priori two propositions are propositions about how our mind works and must of necessity work how can it be explained that such mental categories then fit reality how can it be explained for instance that reality conforms to the principle of causality if this principle has to be understood as one to which the operation of our mind conforms don't we have to make the absurd idealistic assumption that this is possible only because reality was actually created by the mind let me not be misunderstood here I do not think that such a charge against Kantianism is justified and yet through some of his formulations Kant has without a doubt given it some plausibility listen for instance to this programmatic statement of Kant's so far it has been assumed that our knowledge had to conform to observational reality instead it should be assumed that observational reality conforms to our knowledge end of the quote Mises provides a solution to this challenge it is true as Kant says that true synthetic a priori propositions are grounded in self-evident axioms and that these axioms have to be understood by reflection upon ourselves rather than being in any meaningful sense observable yet we have to go one step further we must recognize that such necessary truths are not simply categories of our mind but that our mind is one of acting persons and that our mental categories have to be understood as ultimately grounded in categories of action and as soon as this is recognized all idealistic suggestions immediately disappear and an epistemology claiming that synthetic a priori propositions exist becomes a realistic epistemology instead understood as ultimately grounded in categories of action the gulf between the mental and the real the outside and physical world is bridged as categories of action they must be as much mental things as characteristics of reality as it is through actions that the mind and reality make contact so to speak Kant had hinted at this solution for instance mathematics he sought to be grounded in our knowledge of the meaning of repetition of repetitive operations and he also realized if only somewhat vaguely that the principle of causality is implied in our understanding of what it is to act yet it is only Mises who brings this insight to the foreground causality he realizes for instance is a category of action acting means to interfere at some earlier point in time in order to produce some later result and thus every actor must presuppose the existence of constantly operating causes causality is a prerequisite of acting as Mises puts it but Mises is not as is Kant interested in epistemology as such with his recognition of action as the bridge between the mind and the outside reality he has found a solution to the Kantian problem of how true synthetic a priori propositions can be possible and he has offered some extremely valuable insights regarding the ultimate foundation of other central epistemological propositions besides the principle of causality such as the law of contradiction for instance and he has thereby opened a path for future philosophical research that to my knowledge has hardly been traveled Mises subject matter however as ours here is economics and so I will have to lay to rest the problem of explaining in more detail the causality principle as an a priori true proposition what is important for us is that Mises not only recognizes that epistemology indirectly rests on our reflective knowledge of action and can thereby claim to state something a priori true about reality but that economics does so too and does so in a much more direct way economic propositions flow directly from our reflectively gained knowledge of action and their status as a priori true statements about something real is derived from our standing of what Mises terms the axiom of action this axiom that is the propositions that humans act fulfills the requirements precisely for a true synthetic a priori proposition it cannot be denied that this proposition is true since this denial would itself have to be categorized as an action and so the truth of this statement literally cannot be undone the axiom is also not derived from observation there is only there are only bodily movements that can be observed but no such thing as actions but rather stems instead from reflective understanding moreover as something that has to be understood rather than observed it is still knowledge about reality because the conceptual distinctions involved in this understanding are nothing less than the categories employed in the mind's interaction with the physical world by means of its own physical body and the axioms of action in all its implication is certainly not self evident in a psychological sense although once made explicit it can be understood as an undeniably true proposition about something real and existent certainly it is not psychologically evident nor is it observable that with every action an actor pursues a goal and that whatever the goal may be the fact that it is pursued by an actor reveals that he places a relatively higher value on it than on any other goal of action that he at the start of his action could conceive of it is neither evident nor observable that in order to achieve his most highly valued goal an actor must interfere or decide not to interfere which is of course also an interference at an earlier point in time to produce some later result so that such interferences invariably imply the employment of some scarce means at least those of the actor's body its standing room and the time absorbed by the interference it is neither self evident nor can it be observed that these means must also have value for an actor a value that is derived from that of the goal because the actor must regard their employment as necessary in order to effectively achieve the goal and that action can only be performed sequentially always involving a choice that is taking up that one course of action which at some given point in time promises the most highly valued result to the actor and excludes at the same time the pursuit of other less highly valued goals it is not quasi-automatically clear or observable that as a consequence of having to choose and give preference of to one goal over another one of not being able to realize all goals simultaneously each and every action implies the occurrence of costs that is forsaking the value attached to the most highly valued alternative goal that cannot be realized or whose realization must be deferred because the means necessary to affect it are bound up in the production of another even more highly valued goal and lastly it is not plainly evident or observable that at its starting point every goal of action must be considered worse more to the actor than its cost and capable of yielding a profit that is a result whose value is ranked higher than that of the foregone opportunities and yet that every action is also invariably threatened by the possibility of a loss if an actor finds in retrospect that the actually achieved result contrary to his previous expectations in fact has a lower value than the relinquished alternative would have had all of these categories values ends means choice preference cost profit and loss as well as time and causality are implied in the axiom of action yet that one is able to interpret observations in such categories requires that one already knows what it means to act no one who is not an actor could ever understand them as they are not given ready to be observed but observational experience is cast in these terms as it is construed by an actor nor is a reflective reconstruction a simple psychologically self-evident intellectual task as a long line of abortive attempts on the way to formulate the just outlined insights into the nature of human action proves it took painstaking intellectual effort to explicitly recognize what once made explicit everybody recognizes immediately as true and can understand as true synthetic a priori statements that is as propositions that can be validated independently of observations and that then of course also cannot be possibly falsified by any observation whatsoever the attempt to disprove the action action axiom would itself have to be in action aimed at a goal requiring means excluding other courses of action incurring costs subjecting the actor to the possibility of achieving or not achieving the desired goal and so leading to a profit or a loss and the very possession of such knowledge then can never be disputed and the validity of these concepts can never be falsified by any contingent experiences as disputing or falsifying anything would already have to presuppose its very existence as a matter of fact a situation in which these categories of action would cease to have a real existence could itself never be observed as making an observation to is in action economic reasoning this is Mises great insight has its foundation in just this understanding of action and the status of economics as some sort of applied logic derives from the status of the action action axiom as an a priori true synthetic proposition the laws of exchange the law of diminishing marginal utility the Ricardian law of association the law of price controls and the quantity theory of money all the examples of economic propositions which I have mentioned can be logically derived from this axiom and this is why it strikes us as ridiculous to think of such propositions as being of the same epistemological type as those of the natural sciences to think that they are and accordingly to require testing for their validation is like supposing that we had to engage in some fact finding process with an as yet unknown outcome in order to establish the fact that one is indeed an actor in a word it is absurd all economic propositions which claim to be true and this is what praxeology is all about must be shown to be deducible by means of formal logic from the incontestable true material knowledge regarding the meaning of action more specifically all economic reasoning consists of first an understanding of the categories of action and the meaning of a change occurring in such things as values, preferences, knowledge, means, costs and so on second it consists of a world described in terms of action categories a Robinson crucible world or a world with more than one actor in which interpersonal relationships are possible a world of barter exchange or of money and exchanges that make use of money as a common medium of exchange a world of only land, labor and time as factors of production or a world with capital products a world with perfectly divisible or undivisible specific or unspecific factors of production a world with diverse social institutions treating diverse actions as aggressions and threatening them with physical punishment and so on and third then economic reasoning consists of a logical deduction of the consequences which are to result if some specified action is introduced into this action world or of the consequences which result for a specific actor if this situation is changed in a specified way provided there is no flaw in the process of deduction the conclusions that such reasoning yields must be valid a priori because their validity would ultimately go back to nothing but the indisputable axiom of action if the situation in the changes introduced into the situation are fictional or assumptional like for instance a Robinson crucible world or a world with only indivisible or only completely specific factors of production then the conclusions are of course a priori true only of such a possible world if on the other hand the situation and situational changes can be identified as real perceived and conceptualized as such by real actors then the conclusions are a priori true propositions about the world as it really is such is the idea of economics as praxeology and such then is the ultimate disagreement that Austrians have with their colleagues that their disagreeing pronouncement cannot be deduced from the axiom of action or even stand in clear cut contradiction to propositions that can be so deduced and that even if there is agreement as regards one's identification of facts and one's assessment of certain events as being related to each other as causes and consequences this agreement is superficial such economists either falsely believe such assessments to be really well tested but nonetheless still empirically testable propositions while they are in fact propositions that are true a priori or else they believe them to be empirical laws while a priori reasoning proves them to be no more than historical propositions that provide no basis whatsoever for explaining future events and this then leads directly to what I will speak about tomorrow in detail that is the categorical difference between praxeology as a pure theory of action on the one hand and history on the other hand and the relevance that this distinction has for the problem of social and economic forecasting thank you