The Study of History

Mises devoted all of part three to the discussion of the nature, scope, and methods of historical research. This might be surprising from the pen of an economist. But keep in mind that Mises was interested in economics as a tool to guide action. In his early years as a student at the University of Vienna, this practical concern had made him dissatisfied with the methods taught by the Historical School. A passage from Theory and History sums up the problem:

The historicists’ fateful error consisted in the belief that this analysis of the past in itself conveys information about the course future action has to take. What the historical account provides is the description of the situation; the reaction depends on the meaning the actor gives it, on the ends he wants to attain, and on the means he chooses for their attainment.³⁷

By the 1950s, a sort of a neo-historicism was in full swing and about to conquer western academia. The new movement was led by statisticians and econometricians who held precisely the views that Mises had rejected more than fifty years earlier. In correspondence with Nymeyer, he lamented:

They are full of contempt for what they call “metaphysical economics.” Only “facts”, they say, count. That these “facts” are history and not facts in the sense in which the natural sciences employ this term, remains unknown to them.

The official doctrine of all these research institutions, government economists, university economists and so on is, for instance, that the socialist program is not to be refuted by “metaphysics”, but by “facts”. They point out, e.g., that profits are “only” x% of the national income or “only” y% of the sales dollar and that “therefore” the socialists are wrong. But the socialists believe that all profits as such are wrong, and are to be confiscated. They use the same figures to corroborate their own contentions.³⁸

Mises had turned to economics because this discipline provided knowledge about something on which historical research was mute—even with the advanced techniques of econometrics—namely, the objective suitability of means to attain social ends. Yet the same overarching practical motivation preserved his lifelong interest in the study of history. In Theory and History Mises set out to explain why and how historical knowledge had to complement economics as a guide for human action. Thus he closed a great parenthesis opened during his days in the Grünberg seminar.

In his previous works he had outlined the division of labor between praxeology and history. He had presented history as a sort of residual discipline that sought to come to grips with problems that could not be addressed by the exact disciplines.³⁹ He had singled out in particular the problem of assigning relative quantitative weights to different causes that combine into an observable effect. Mises called this the problem of “relevance.” The only way to tackle it was to apply the specific tool of the historian, understanding or Verstehen:

The historian can enumerate all the factors which cooperated in bringing about a known effect and all the factors which worked against them and may have resulted in delaying and mitigating the final outcome. But he cannot coordinate, except by understanding, the various causative factors in a quantitative way to the effects produced. He cannot, except by understanding, assign to each of n factors its role in producing the effect p. Understanding is in the realm of history the equivalent, as it were, of quantitative analysis and measurement.

But the understanding of the relative quantitative contribution of any one cause to a combined effect could not be independently verified or refuted. As a consequence, the problem of relevance was the source of insuperable disagreement between men of science. And Mises stressed that it was in fact the only source of lasting disagreement:

Historical understanding can never produce results which must be accepted by all men.... Historians may disagree for various reasons. They may hold different views with regard to the teachings of the nonhistorical sciences; they may base their reasoning on a more or less complete familiarity with the records; they may differ in the understanding of the motives and aims of the acting men and of the means applied by them. All these differences are open to a settlement by “objective” reasoning; it is possible to reach a universal agreement with regard to them. But as far as historians disagree with regard to judgments of relevance it is impossible to find a solution which all sane men must accept.⁴⁰

In Theory and History Mises wanted to flesh out his theory of understanding. He did not believe that the necessarily subjective judgments of relevance somehow made history otiose. Despite its deficiencies, only the discipline of history could solve certain problems that were of utmost practical importance. In particular, history alone could provide an analysis of the context of action. Mises stressed that human action was always embedded in concrete circumstances of time and place. Action was a conscious response to a given situation and it could succeed only if the acting person understood the present. But:

There is no such thing as a nonhistorical analysis of the present state of affairs. The examination and description of the present are necessarily a historical account of the past ending with the instant just passed. The description of the present state of politics or of business is inevitably the narration of the events that have brought about the present state. If, in business or in government, a new man takes the helm, his first task is to find out what has been done up to the last minute. The statesman as well as the businessman learns about the present situation from studying the records of the past.⁴¹

Mises knew what he was talking about. Reporting on current business and political conditions had been his daily bread for many years. Moreover, at two critical junctures he had analyzed the state of affairs in politics: in Nation, State, and Economy (1919) and in Omnipotent Government (1944) he had analyzed the forces at work in the rise of aggressive nationalism and statism as well as their cataclysmic endings in the two world wars. At the onset of the Cold War he had added a third piece, Planned Chaos (1946), which told the tale of the rise of the Soviet Union to its position of power. Thus he was in a good position to challenge those of his readers who might disagree:

Let those who want to reject the preceding statements undertake to describe any present situation— in philosophy, in politics, on a battlefield, on the stock exchange, in an individual business enterprise— without reference to the past.⁴²

But how far back should history be studied? Was it practical or necessary for statesmen and business leaders to seek instruction about more than the past few years before they took office? He observed that there “is no point in history at which we can stop our investigation fully satisfied that we have not overlooked any important factor.”⁴³ There was no a priori rule that could be helpful in deciding where to stop historical research. The usefulness of further knowledge could only be determined after completion of additional research. In any case, it was a grave error to believe that increasing remoteness in time meant decreasing practical relevance:

The mere fact that an event happened in a distant country and a remote age does not in itself prove that it has no bearing on the present. Jewish affairs of three thousand years ago influence the lives of millions of present-day Christian Americans more than what happened to the American Indians as late as in the second part of the nineteenth century. In the present-day conflict of the Roman Church and the Soviets there are elements that trace back to the great schism of the Eastern and Western churches that originated more than a thousand years ago.⁴⁴

The specific intellectual tool applied in historical research was “understanding” or Verstehen—the term introduced by the Southwest German School of historiography. In his previous writings, Mises had referred to and endorsed the historical works of this school. In Theory and History, he developed his own account of the theory of Verstehen. He presented it as a tool to unearth facts provided by introspection and by contact with other human beings:

It signifies the cognition of human emotions, motivations, ideas, judgments of value and volitions, a faculty indispensable to everybody in the conduct of daily affairs and no less indispensable to the authors of poems, novels, and plays as well as to historians. Modern epistemology calls this mental process of the historians the specific understanding of the historical sciences of human action.... [However it] is not a mental process exclusively resorted to by historians. It is applied by everybody in daily intercourse with all his fellows. It is a technique employed in all interhuman relations. It is practiced by children in the nursery and kindergarten, by businessmen in trade, by politicians and statesmen in affairs of state.⁴⁵

Mises was reluctant to use the word “psychology” to describe this approach, because by the early 1950s the new discipline of experimental psychology had become fairly entrenched and was about to become identified with psychology per se. In order to avoid confusion, he introduced a new term to designate the traditional humanistic discipline of psychology:

Thymology is... what everybody learns from intercourse with his fellows. It is what a man knows about the way in which people value different conditions, about their wishes and desires and their plans to realize these wishes and desires. It is the knowledge of the social environment in which a man lives and acts or, with historians, of a foreign milieu about which he has learned by studying special sources.⁴⁶

Mises observed that the members of the Southwest German School were unaware of the existence of economic theory, but this did not diminish their achievements in the clarification of the logical nature of history. In Theory and History, Mises made an important contribution to the theory of Verstehen. He pointed out that the main application of Verstehen was not in the analysis of the past, but as a tool for anticipating the future. There were in fact two types of historians: “the historian of the past as well as the historian of the future, i.e., acting man.”⁴⁷ The Southwest German School and its followers such as Alfred Schütz had in their writings exclusively dealt with the historian of the past. But the most urgent questions related to the historian of the future:

The main epistemological problem of the specific understanding is: How can a man have any knowledge of the future value judgments and actions of other people? The traditional method of dealing with this problem, commonly called the problem of the alter ego or Fremdverstehen, is unsatisfactory. It focused attention upon grasping the meaning of other people's behavior in the “present” or, more correctly, in the past. But the task with which acting man, that is, everybody, is faced in all relations with his fellows does not refer to the past; it refers to the future. To know the future reactions of other people is the first task of acting man. Knowledge of their past value judgments and actions, although indispensable, is only a means to this end.⁴⁸

What then is the logical character of the Verstehen of future action? Mises is unequivocal: the historian of the future is essentially an intellectual entrepreneur. All his knowledge concerns contingent data of the past that cannot be generalized. How can such information about particular circumstances of time and place be used to forecast the future? There is only one way: the historian of the future must guess what the future will be. Forecasting is inherently speculative and uncertain when it comes to anticipating future human behavior:

Psychology in the sense of thymology is a branch of history. It derives its knowledge from historical experience.... All that thymology can tell us is that in the past definite men or groups of men were valuing and acting in a definite way. Whether they will in the future value and act in the same way remains uncertain. All that can be asserted about their future conduct is speculative anticipation of the future based on the specific understanding of the historical branches of the sciences of human action.⁴⁹

This insight delivered a clue to the vexed problems of cultural history, a discipline riddled with chauvinistic and nihilistic prejudices. Mises would have nothing of the sort of cultural relativism that the young Lévi-Strauss had championed just a few years before.⁵⁰ He believed in the superiority of western culture, the evidence being that all other cultures were eager to copy the institutions they believed had brought affluence to the West. And he did not dance around the fact that this culture had been created by white men. However, this was in no way a scientific vindication of racist policies:

Historical experience warrants the statement that in the past the efforts of some subdivisions of the Caucasian race to develop a civilization have eclipsed those of the members of other races. It does not warrant any statement about the future. It does not permit us to assume that this superiority of the white stock will persist in the future.... In 1760 a historian would have been right in declaring that Western civilization was mainly an achievement of the Latins and the British and that the Germans had contributed little to it.... But if somebody had inferred from these facts that the Germans are culturally inferior and would rank in the future far below the French and the British, his conclusion would have been disproved by the course of later history.... All that can be said about racial issues on the ground of historical experience boils down to two statements. First, the prevailing differences between the various biological strains of men are reflected in the civilizatory achievements of the group members. Second, in our age the main achievements in civilization of some subdivisions of the white Caucasian race are viewed by the immense majority of the members of all other races as more desirable than characteristic features of the civilization produced by the members of their respective own races.⁵¹