The Argument in a Nutshell

For Mises, the starting point is that “[a]ny epistemological speculation must lead toward determinism.” This is so because the human mind is the instrument through which we learn about all things, and our human mind has a determinist bent. It cannot help thinking that all things are strictly determined by certain causes.

Whatever the true nature of the universe and of reality may be, man can learn about it only what the logical structure of his mind makes comprehensible to him.... The logical structure of his mind enjoins upon man determinism and the category of causality. As man sees it, whatever happens in the universe is the necessary evolution of forces, powers, and qualities which were already present in the initial stage of the X out of which all things stem. All things in the universe are interconnected, and all changes are the effects of powers inherent in things. No change occurs that would not be the necessary consequence of the preceding state. All facts are dependent upon and conditioned by their causes. No deviation from the necessary course of affairs is possible. Eternal law regulates everything. In this sense determinism is the epistemological basis of the human search for knowledge. Man cannot even conceive the image of an undetermined universe. In such a world there could not be any awareness of material things and their changes. It would appear a senseless chaos. Nothing could be identified and distinguished from anything else. Nothing could be expected and predicted. In the midst of such an environment man would be as helpless as if spoken to in an unknown language. No action could be designed, still less put into execution. Man is what he is because he lives in a world of regularity and has the mental power to conceive the relation of cause and effect.⁷

This point of view implies that human action could be explained, at least in theory, in terms of underlying material forces. We know that human action is immediately determined by the ideas and value judgments of the acting individuals. But these ideas and value judgments must in turn be determined by more fundamental causes. If such causes were physical or chemical processes, then the explanation of human behavior could become a branch of applied physics or applied chemistry.

However—and this is the crucial consideration that Mises had stressed already in previous work—at present nobody knows anything about the more fundamental causes of human behavior. Up to now all attempts to identify laws that would explain ideas and value judgments in terms of physical, chemical, or other processes have been in vain. There are various hypotheses about what such basic determination could look like. But not a single one of them has ever been validated.⁸ All such hypotheses are therefore mere speculation. They are philosophical or metaphysical constructs, not scientific knowledge.⁹

Our deficient knowledge about the more remote causes of human behavior has two straightforward methodological implications. All efforts to explain the causes and consequences of human behavior must, at least for the time being, take individual human behavior as an ultimate point of departure. They must accept the principle of methodological individualism. The older economists had applied this principle intuitively and even Schumpeter, who coined the term, defended it merely on grounds of expediency. Mises delivered an epistemological demonstration of its necessity. Methodological individualism is rooted in deficient human knowledge.

The causal analysis of individual human behavior must take account of the fact that any human action has certain invariant consequences—that is, consequences that result from like action at any place and any time. For example, an increase of the quantity of money tends to entail an increase of the price level above the level it would otherwise have reached, irrespective of when and where the money supply is increased. The study of such consequences is the task of praxeology and economic science.

But human action also has contingent causes and consequences. The very same action—increasing the quantity of money—can be inspired by very different ideas and value judgments. And the objective consequences resulting from any action can provoke very different individual reactions at different times and places. In other words, the causal chains through which ideas and value judgments are connected with human action are contingent. The elucidation of these contingent causal chains is the task of historical research.¹⁰

Mises stressed that this is as far as scientific analysis of human action can go. Starting from observable human behavior we can explain its invariant consequences (with the help of economics); we can also explain its contingent consequences (by historical understanding); and we can to some extent explain how this behavior resulted from the ideas and value judgments of the acting person in the particular case under consideration (again by understanding). Mises did not exclude the possibility that individual value judgments and ideas had invariant causes, but again, neither he himself nor anybody else knew what they were. At present, only some of the contingent causes of human action could be identified by historical understanding on a case by case basis. And even this analysis was not likely to give the full picture. There was an unfathomable remnant that defied any explanation whatever: historical individuality. Mises explained:

The characteristics of individual men, their ideas and judgments of value as well as the actions guided by those ideas and judgments, cannot be traced back to something of which they would be the derivatives. There is no answer to the question why Frederick II invaded Silesia except: because he was Frederick II.¹¹

It follows that the social sciences, at least for the time being, cannot be bound with the natural sciences into a unified body of scientific knowledge. “This ignorance splits the realm of knowledge into two separate fields, the realm of external events, commonly called nature, and the realm of human thought and action.”¹² For methodological reasons, the social sciences are separate from the natural sciences. Mises called this the principle of methodological dualism.

Social analysis, if it just sticks to the known facts, must explain all social phenomena as resulting from individual action, and the causal chain of events must start and end with the ideas and value judgments of individuals. Scientific endeavors within the constraints of methodological individualism and methodological dualism entail the development of the disciplines called “praxeology” and “history.” The former is the discipline that describes the invariant consequences of human action that result regardless of time and place. The latter is the discipline that (1) describes value judgments from the point of view of the acting person and (2) describes how individual actions and other relevant factors combine with one another in a given objective context to produce a definite outcome. History describes in retrospect how the acting person perceived the situation in which he had to act, what he aimed at, what he believed to be the means at his disposition. And it uses the general laws provided by economics and the natural sciences to describe the objective impact that the acting person had through his behavior. Thus the mission of history is to describe the drama of social and economic evolution from the point of view of its protagonists. Its specific tool is “psychology” or “specific understanding” or— Mises's favorite expression—“thymology.”

Of the two disciplines, economics had the most momentous practical implications.¹³ In Human Action, Mises had shown that economic analysis leads directly to laissez-faire conclusions. He demonstrated that government intervention entails consequences that are unwanted even from the point of view of the champions of these interventions.

In Theory and History, he completed the case for capitalism from the epistemological point of view. In particular, he took on those theories that were grounded on an explicit or implicit rejection of methodological individualism and methodological dualism. His basic argument against the approaches of Marxism, teleological philosophies of history, and positivism was that they had no scientific underpinning whatever. They were based on certain beliefs about social and economic evolution, but they had not delivered the goods. Their most fundamental tenets could neither be refuted nor verified with the tools of science: reason and observation. Moreover, to the extent that they did make propositions about ascertainable facts, they were wrong (or incoherent) at the crucial junctures of the argument. For example, Marxism and the various philosophies of history could not explain how the general direction in which they believed society was moving resulted from individual action. Positivism blithely disregarded the fact that there are no constant relationships in observable human behavior. The champions of historicism contradicted themselves whenever they championed any government policy whatever, while holding to the notion that there was no such thing as economic law. Strictly speaking, these were metaphysical or quasi-religious doctrines, not science.